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Despite the many crises with Facebook in a leading role, the company remains a profit machine. But in the margins of the results, an existential problem seems to emerge, in the form of a teenage exodus.
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The reason for this somewhat underperformance is a difficult climate in the advertising market. On the one hand, due to the difficult macroeconomic conditions, in which many companies are struggling so hard with supply problems that it makes less sense to advertise their scarce products. But more important on that front are some changes at that other tech giant, Apple
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The essence
- Due to difficulties in the advertising market, Facebook reported figures slightly below analyst consensus and is also cautious for the coming quarter.
- It will be worst for investors: Facebook is letting another $50 billion flow their way through a buyback program.
- Not everything is good news, however: Facebook is concerned about the waning interest among younger users.
- The company is adapting its organization to better serve that target group.
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It rolled out a new version of its operating system for iPhone users in June and July with iOS 14.5. In it, Apple made some adjustments to how app operators can monitor the surfing behavior of their users. This makes it more difficult to personalize ads and monitor the effectiveness of campaigns. That weighs on the revenues of companies such as Facebook, for which the so-called ‘in-app data’ is very important. Last week also be Snap, the company above the social app Snapchat, already to Apple to explain his number miss.
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Like water from a duck
Unlike Snap, however, investors do not react scathingly to Facebook’s numbers. While Snap shares plunged nearly a quarter after the results, Facebook shares narrowed the loss to about 5 percent during the session on Tuesday. The fact that CEO Zuckerberg announced in the margins of the results that Facebook will buy back its own shares for an additional $50 billion, stifles sentiment. The following has been the case for Facebook for some time: as long as the winning machine keeps spinning like a charm Wall Street takes into account the many PR and other crises that incessantly engulf the company.
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That’s how it seems to go with whistleblower for now Frances Haugen, the former product manager at Facebook who plunged her ex-employer into crisis again in recent weeks. As a whistleblower, Haugen leaked thousands of internal documents, which showed, among other things, that Facebook is deliberately lax about hate and violence on its platforms.
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Haugen was invited to the US and UK parliaments for more explanation and also made a plea for more regulation. But investors seem to assume for the time being that this too will blow over and that the business of Zuckerberg and co. will not be hit amidships.
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Internal memos
However, in the margins of the many documents that have ended up in the hands of the US authorities and a handful of media in recent weeks, there is also a problem that may soon be less easy to ignore. The documents clearly show that Facebook is struggling with waning interest from an important quarter: teenagers.
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An internal memo, dated March, shows that the figures for daily use in the group of 18-29 year olds are declining on Facebook apps. Facebook itself fears a decline of 4 and 45 percent respectively in the next two years. That decline is most pronounced on the flagship app Facebook – a social medium that young users characterize as ‘old-fashioned’ and ‘dated’, according to internal research. But the ‘engagement’ on Instagram would also be waning, according to internal research.
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Copy work
That’s not really surprising. With the rise of social apps such as Snapchat – today the preferred means of communication among many young people – and the extremely popular video app TikTok among young people, Facebook has formidable competitors for younger eyeballs. It is no coincidence that the company copied the ‘stories’ for its own app Instagram from Snapchat and now also has a TikTok clone with ‘reels’. But the documents clearly show that Facebook is afraid of missing out on an entire generation of users, which could create a longer-term existential crisis.
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We make young users our pole star.
Mark Zuckerberg
CEO Facebook
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Zuckerberg therefore picked up on the theme during the conference call about the figures. According to the founder and CEO, Facebook is reorganizing its teams to focus more on younger people. ‘We want to make young people our pole star rather than making a product for the largest possible group.’
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According to the CEO, this will mean that it will see its broad group of users increase less quickly in the coming years. But that shift to the commercially important young people is more important. According to Zuckerberg, that transition will take years.
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Billions for the ‘metaverse’
An important reason why Facebook is cautious about the profit projections is that the company is currently investing heavily in Reality Labs, the division specializing in augmented and virtual reality. He is working on what Facebook calls the ‘metaverse’, a virtual world filled with digital avatars, in which people can work and relax.
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Facebook announced earlier this month that it will recruit 10,000 people in Europe to build that world. That will weigh $10 billion on operating profit in 2021, it sounded Monday evening. The cost will increase later on. And CEO Mark Zuckerberg immediately gave the warning that there will not immediately be income. “But we believe very strongly that this will be the successor to the mobile internet,” he said.
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