26/09/2020

Facebook stock imploded after a brutal number in its earnings report. Here’s why FB shares may not recover over the long term.

  • Facebooks share price plunged after an ugly quarterly report.
  • A rise in the companys operating costs spooked investors.
  • But Facebook has bigger problems over the long term.

Theres a simple reason why Facebook stock is in free-fall today. The Mark Zuckerberg-led social media giant has peaked.
FB shares slid more than 6% on Thursday after Facebook reported mixed Q4 earnings. Earnings per share ($2.56) and revenue ($21.08 billion) outperformed.
But there was another figure that loomed much larger: a massive 51% increase in operating costs and expenses, which rose to $46.71 billion for the year.
Facebook stock careened lower on Thursday. | Source: Yahoo Finance
On top of stagnant user growth, this rise in expenses signals an alarming trend for the social media giant.
Attempts to expand the company into new sectors and ventures appear to have stalled. Combined with a decline in user engagement, this hints that the company is struggling to grow.
Its Getting Harder Being Facebook
Its tough being Facebook.
Not only does much of the world blame you for damaging your users mental health and undermining democracy, but governments and regulators throughout the globe are increasingly getting on your case.
Because of billion-dollar fines, multiple anti-trust investigations, and the cumulative effort of having to constantly prove that its not the embodiment of evil, the cost of running the Facebook behemoth is growing.
Unsurprisingly, Facebooks operating margin is declining as a result. In 2018, it was 45%. In 2019, 34%.
Source: Twitter
Facebooks shrinking profit margin is actually a longer-term trend, the result of having to spend more to keep its colossal network running and prove to regulators that its secure and safe.
Yet rising costs arent the only reason why Facebook stock is imploding and investors may be on the verge of leaving en masse.
Facebook Stock Is Plunging Because the Company Cant Grow
Facebook is struggling to expand.
FBs quarterly results showed that its global monthly active users (MAUs) number had stagnated at 2.5 billion. U.S. and Canadian MAUs did rise but only by 1 million to 190 million.
If the market wasnt already spooked by such feeble numbers, theyre almost certainly spooked by the fact that Facebooks growth plans appear to be dead on arrival.
Its much-vaunted Libra cryptocurrency faces stark opposition from governments around the world. Numerous industry figures have predicted that it wont launch in 2020 maybe ever. And last week, Vodafone became the latest company to pull out of the Libra Association, which would oversee Libras network, if it ever launches.
So much for its plans to sweep up all our financial data.
Then theres WhatsApp, which Facebook acquired in 2014 for a cool $19 billion. Despite having big ideas for WhatsApp, Facebook recently shelved plans to insert money-making ads into the messaging platform. Instead, its focusing on trying to develop revenue streams by catering to businesses who suspect their customers might want to use the app to message them. Good luck with that.
FB Investors Dont Want to Go Back to Basics
This really shouldnt be surprising. Look at other new routes to growth Facebook has dallied with in the past. Theyve almost all failed spectacularly.
Do you remember its hilariously ill-fated Free Basics service? Facebook launched it in 2013 with the grand aim of providing free internet access to millions of people in India. It was ignominiously shut down by Indias telecoms regulator in early 2016, ostensibly for undermining net neutrality.
Facebook is suffering from a pathological inability to launch new successful ventures. It doesnt look capable of expanding beyond its basic business, and its this suspicion that is scaring off investors.
Disclaimer: This article represents the authors opinion and should not be considered investment or trading advice from CCN.com.
This article was edited by Josiah Wilmoth.