Facebook Revenue Miss (Not A Typo)
In yesterday’s Q2 Earnings call Facebook announced its first revenue miss in three years. Don’t get me wrong, the social Goliath still had an amazing quarter with top-line revenue up 42% YoY and ad revenue topping $13.2B. However, we’re starting to see the first signs that usage on the platform is declining, with DAUs (daily active users) holding flat at 1.47B worldwide and engagement rates dropping for the first time ever. As you can see on the left in the graphic below, FB’s average engagements per post dropped 4% YoY.
So why is FB’s engagement rate declining? The primary suspect is the Cambridge Analytica data breach fiasco which exposed all the ways FB was sharing user data. This has caused a pullback from users who are changing their privacy settings to be less exposed to marketers, while also thinking twice before clicking on that spamish looking post. The early effects of GDPR might also be seen in the Q2 engagement drop. Even though the new regulations didn’t take effect until late May, you can already see the impact with users who haven’t given their explicit consent to be behaviorally retargeted to.
After the earnings call FB’s stock dropped more than 20%, wiping out over $100B in market cap (I think that might be a record for after hours trading). Besides the short-term earnings miss, investors were reacting to FB’s revised outlook for the rest of 2018 which called for single-digit revenue growth. What a difference just one quarter can make!