Tech

Facebook Issues Growth Warning

For the past fifteen years, Facebook has grown exponentially. Even during times of bad press and scandal, the company has gone from strength to strength and made more money than Mark Zuckerberg could have dreamed of when he started his social media company at university all those years ago. It’s often said in business that the good times can’t last forever, but for Facebook, it appeared that they could. However, it seems that gravity might finally have caught up with it. The company has just warned investors that it foresees trouble ahead for the rest of 2021.

The potential growth of Facebook is limited only by the number of people in the world who have an internet connection. There are currently just over 7.6 billion people on planet Earth. Amazingly, Facebook claims that 2.9 billion of those people log into Facebook at least once per month. There was always going to come a point where Facebook would struggle to add new users purely because everyone who might want a Facebook account already has one, but that isn’t why the company expects a slowdown this year. Instead, Facebook points to the increasing costs of moderation and hostile action from Apple as potential hurdles for the coming months.

Disregarding the bad news for a moment, we should perhaps be surprised that Facebook is still growing at all after fifteen years of operation. During the second quarter of 2021, 7% more people logged into the site than they did during the same period of last year. That caused a surge in revenue, meaning that Facebook exceeded its revenue projections for the quarter, much to the delight of Wall Street. The smiles on the faces of Wall Street executives didn’t last for long, though. If Facebook is right, this might be the last time we see solid growth from the company for a long time. The third quarter is expected to be bad, and the fourth quarter is expected to be worse.

The slowdown Facebook expects to see is not one of use but of revenue. Having faced strong criticism from several directions about its handling of data and its policy on misinformation – not least from US President Joe Biden – Facebook is investing more money in security and software to combat the problem. It’s also investing big money elsewhere. One billion dollars has been set aside to pay creators to come up with content for the tech giant’s photo and video apps. They’re also investing heavily in another attempt at “smart glasses,” and something Zuckerberg calls the “Facebook metaverse,” which will use VR and AR hardware and software to create an immersive virtual world.

The amount of growth that Facebook sacrifices to invest in new technologies is within the company’s control. What Apple does is very much outside its control. Apple has recently changed its policies on data collection and sharing and will now actively try to prevent Facebook (and other apps) from gathering data about users who use Apple hardware and software. Given the enormous number of people who access Facebook’s various platforms through their iPad, iPhones, or Macbook, this policy change is significant. Facebook relies on that data to drive its advertising algorithms. The reason that marketers pay so much to Facebook to use its advertising platforms is that Facebook can target specific content to specific users better than any other advertising system in the world. If Apple throws a metaphorical spanner in the works and cuts Facebook off from the data it needs, the targeting system becomes less efficient. That might, in time, make advertisers less inclined to pay big money to use it. As advertising is Facebook’s biggest source of income, the consequences could be devastating.

If advertising takes a hit, Facebook will have to try to find other ways to make money. Some potential routes might already exist. A few years ago, By incorporating a Facebook-branded online slots page into its primary website, Facebook hoped to coax at least some of the millions of people who spend up to fifty billion dollars every year into giving them a try. So far, the plan hasn’t worked very well. Online slots websites still make far more money than the Facebook-branded effort does. On the other hand, Facebook hasn’t put much effort into marketing its online slots. There might be regulatory concern if they do, given the number of teenagers who use the website, but so long as they can restrict access only to those who should be able to see it, there might be one or two billion dollars to be made there.

Even if Facebook has internal concerns about a revenue slowdown, those concerns don’t appear to be affecting plans for the future. Facebook recently announced a recruitment drive for people to come and work in the aforementioned “metaverse” department with a brief to develop new kinds of augmented and virtual reality hardware and software. There are also new Facebook Portal products in the pipeline and rumours about an expansion of Facebook’s gaming division. Attempts to lure streamers away from platforms like Twitch haven’t gone to plan in the past, but Facebook hasn’t given up on the idea altogether. It still believes it can make an attractive proposition so long as it presents it the right way, so it wouldn’t be a surprise to see them come back to the idea in the future.

When a company issues warnings about future revenue, the value of that company usually takes a brief hit. As of the time of writing, that hasn’t been the case for Facebook. That might have something to do with the $29.07bn in revenue that came into the company during Q2 of 2021, which is a massive 56% increase compared to the previous year. Even if a slowdown is coming, Facebook might still make more in the second half of 2021 than it did in the second half of 2022. So long as that’s the case, Wall Street won’t worry too much. Nevertheless, the day where it’s impossible for Facebook to add any more users will eventually arrive – and that’s when things might begin to get difficult for Zuckerberg.

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