Facebook’s stock was down almost 20% at the time of posting this article on Thursday at 9am PST. This fall came after the company reported slightly disappointing results for the second quarter and issued a growth warning.
At first glance, Facebook’s results for the three months ending June 30 weren’t as terrible as the market reaction would suggest. The company reported a record profit of $5.1 billion on $13.2 billion in revenue, both metrics are roughly in line with Wall Street expectations. It was the financial outlook, given by David Wehner, the company’s CFO, that really caused Facebook’s share price to take a dive. Wehner warned that operating margins would worsen over the next several years as expenses are anticipated to grow faster than revenue. He also warned that revenue growthwould slow down significantly in the upcoming quarters.
One of the reasons for the expected slowdown is the adoption of the Stories format, this format isn’t as easily monetized as the News Feed, another metric that could become cause for concern over the long run. Facebook’s user base has almost stopped growing. As the chart illustrates, Facebook added no daily active users in North America and Europe in the past quarter, this has a disproportionate impact because each new user in these regions generates multiple times the revenue a new user in other parts of the world generates.
During a conference call with analysts, Facebook CFO David Wehner stated that sales growth may decline as the company prioritizes new formats like Stories and offers users “more choice around privacy.”
Facebook has found success with the three apps by emphasizing Stories, a visual and typically ephemeral format pioneered by Snapchat. But any benefits found there could come at the expense of advertising sales growth.
“The question is will this monetize at the same rate as News Feed,” Sheryl Sandberg, Facebook’s COO, said on the conference call. “And we honestly don’t know.”