2018 hasn’t turned out to be a good year for Facebook. Its reputation has taken several hits owing to the Cambridge Analytica privacy scandal in March and a data breach affecting 29 million users in September. On top of that, it’s received constant criticism from the U.S. Congress for allowing political propaganda to spread through its platform – swaying the result of the 2016 U.S. Presidential election. Among such mishaps, Facebook witnessed the largest single-day drop in shares at the Wall Street. However, on 30th October, 2018, Facebook’s share rose after the social media giants revealed its Q3 2018 revenue and forecast for the future.
It wasn’t the revenue part of the report that caused Facebook’s share to rise. Although the company earned $13.73 in revenue, the percentage gain from Q3 2017 was only 33% – slower than the previous years. Facebook’s revenue increased 49% in Q3 2017 and 59% in Q3 2016. In the last quarter, however, Facebook made a profit of $5.1 billion, or $1.76 per share, which was above the average per-share estimate of $1.48. In addition to its revenues, Facebook’s user growth also continued to take a hit. Facebook reached 2.27 billion monthly users in the third quarter, adding 37 million new users at a growth rate of 1.8%. The rate is slightly better than the first quarter of the year, when Facebook recorded the slowest-ever growth rate of 1.64%. Nonetheless, it was lower than the 2.29% estimated by Wall Street.
However, in the core U.S. and Canada market, Facebook witnessed zero growth along with losing 1 million monthly users in Europe. These markets make up 70% of Facebook’s revenue and growth in these regions is vital to bring in profits. Facebook’s average revenue per user worldwide is $6.09 – as it rakes in $27.61 per users in the US and Canada and $8.82 in Europe.
However, Facebook revealed in its forecasts that the margins would stop shrinking after 2019 as the cost of scandals would subside. Moreover, Facebook CEO Mark Zuckerberg divulged Facebook’s imminent problem, stating that users are not spending more time on feeds and rather gravitating towards features such as direct messaging and video viewing. As a majority of Facebook’s ads are in and around the News Feed, a shift from that medium is responsible for lesser clicks. Countries such as India, Indonesia, and the Philippines, where Facebooking is witnessing the majority of growth, has low revenue per user, as advertisers focus more on TV, print and outdoor advertising.
Zuckerberg also focused on the fact that sharing on social media is shifting towards private chat where users send 100 billion messages on Facebook’s apps per day and Stories where people share 1 billion slideshows per day. He cited Apple’s iMessage and YouTube, but not Snapchat, as Facebook’s big competitors going forward. Those comments drove shares down 5 percent, reversing early gains from the forecast report. But later, he noted that Facebook believes it’s found the right formula for showing people more meaningful passive video, so Facebook will lift some restrictions on how many lucrative video ads it showed. That pushed Facebook’s share back to 3 percent up in after-hours trading.