By now you know the financial news about Facebook. It was a record-setting day…in the wrong direction. What does that mean for communicators, if anything?
Shares plunged nearly 19% today July 26, one day after the company’s chief financial officer David Wehner said sales growth would continue to slow through the rest of 2018. “Our total revenue growth rates will continue to decelerate in the second half of 2018, and we expect our revenue growth rates to decline by high single-digit percentages from prior quarters sequentially in both Q3 and Q4,” he said.
This was due in part, Wehner said, to the loss of several million users, including 3 million in Europe, who departed the social network in the wake of the Cambridge Analytica scandal, which saw data from 87 million Facebook profiles breached.
With fewer eyeballs to gaze at its platform, ad revenue, Facebook said, is expected to decline and recovery is not expected in 2018. Today, investors reacted with panic, providing Facebook with its worst financial performance since it became a public company in May 2012.
Not only that, the company’s share price decline translated to a loss of about $120 billion in value in its market capitalization, the steepest drop by a U.S. public company since Intel Corp. shed $91 billion in 2000, according to WSJ Market Data Group.
You Deserve a Break Today
Putting this number in perspective, Facebook lost about one-fifth of its market value today, a decline equivalent to nearly the entire value of McDonald’s.
Markets abhor uncertainty. And Facebook has plenty of it, with governments across the globe slapping data regulations on the social media behemoth that could damage its business model. Interestingly, the argument can be made that Facebook will benefit from regulation, although regulating an unwieldy enterprise that boasts 2.23 billion monthly active users may prove difficult.
What goes up must come down, of course. No company can grow every quarter. Quarter after quarter of simply spectacular financial results and user growth in nearly all demographics, although not users younger than 24, kept the company a Wall Street darling. The last time Facebook missed revenue estimates was Q1 2015. Facebook's run since 2015 has been phenomenal.
That's why some are say there’s a silver lining, though it might be hard to see it at the moment. (Certainly Mark Zuckerberg, whose wallet is $15 billion lighter than it was July 25, probably is finding it difficult to smile.) The silver lining is Facebook is so large it can afford to shed a few million users and see flat or declining revenue during a few quarters. Most companies are not nearly as fortunate. As noted above, how many companies could lose a McDonald’s and still be in business? The answer: not many.
What's Up for Communicators?
The question for communicators: Is now a good moment to abandon the platform as a marketing and communications vehicle? It is if you believe Facebook's brand and reputation are irreparably damaged and the company will fold like a house of cards as millions of users depart abruptly.
Of course, as we noted above, Facebook could shed several million users gradually and remain the dominant social network by a wide margin. Contrast Facebook's 2.23 billion active monthly users with YouTube's 1 billion active monthly users.
Over the past year numerous studies showed that while people older than 24 were powering Facebook’s user growth, the platform remained by far the gold standard in social media. Yes, users were concerned about the safety of their data, but they refused to abandon Facebook in large numbers or change their use patterns significantly. An axiom of communications is to engage consumers where they live. With so many consumers continuing to live on Facebook, marketers will abandon the platform at their peril.
You're Not Young Anymore
Still, it might be time for marketers to think about moving away from Facebook if they’re trying to reach a young audience. A legitimate question is whether or not the repercussions of today’s financial disaster will make Facebook even more of a bogeyman for the younger generation. Communicators who anticipate such a reaction might be wise to move their marketing dollars to younger-skewing platforms, or at least to diversify.
Of course, earlier in the year Facebook gave marketers more reason to run to the exits, with Zuckerberg promising, somewhat cryptically, to concentrate the platform on friends and family, presumably to the detriment of brands. And Facebook's infamous paid model is another thorn in the side of brands.
The jury likely will remain out for a bit on the question of whether or not today's disastrous financial showing was an anomaly confined to Wall Street or the beginning of the end for Facebook.
Seth Arenstein is editor of PR News. Follow him: @skarenstein