Facebook's Mixed Earnings Point to Slowing Growth Ahead

Photo Credit: Richard Drew/AP/Shutterstock
October 30, 2018
Updated 20d ago

By Alex Heath

Facebook ($FB) shares whipsawed in after-hours trading Tuesday after the company just narrowly missed revenue and user estimates and forecast a continued ramp-up in spending.

The world’s largest social network reported revenue of $13.73 billion, just shy of Wall Street’s consensus estimate of $13.38 billion, and strong earnings per share of $1.76. But daily user growth in North America — the world’s most valuable ad market — remained flat for the third straight quarter. And in Europe, Facebook lost 1 million daily users on top of the 3 million it lost last quarter.

For the first time, Facebook revealed that 2.6 billion people use at least one of its services, including Instagram and WhatsApp, every day.

The cost of maintaining Facebook’s unprecedented scale is increasing, however. The company’s headcount swelled to more than 33,000, up 45 percent from the previous year, as regulators around the world continue to apply more pressure on Facebook’s data collection and privacy practices. Facebook said its capital expenditures would reach an upwards of $20 billion in 2019, well above Wall Street's consensus estimate of $17.3 billion.

After Facebook’s missed its second quarterly earnings results back in July, the company’s market value plummeted more than $200 billion — the single largest drop in stock market history. Facebook forecast that its revenue growth will continue to slow amidst plateauing user growth, which caused many Wall Street analysts to reevaluate the aggressive price targets they had given the stock.

On the company’s latest earnings call with investors Tuesday, CEO Mark Zuckerberg said that he expects 2019 “to be another year of significant investment” as the company grapples with privacy scandals, misinformation, and fundamental shifts in its business.

Zuckerberg said that he expects the Stories format, which Facebook copied from Snapchat in 2016, to eventually be used more than Facebook’s current cash cow, the News Feed. Facebook has started showing ads in Stories on Instagram and the Facebook app, but Zuckerberg warned that the business transition will be similar to the company’s early, painful shift from desktop PCs to mobile devices.

Zuckerberg also highlighted video opportunities with Watch, Facebook’s YouTube competitor that features a mix of exclusive shows and video from media partners. While Facebook is seeing exponential user growth in Watch, Zuckerberg said the service is still “early” in being able to compete with YouTube for ad dollars and user attention.

“It will take some time for our business to catch up to our community growth,” Zuckerberg said.