Are the world’s biggest social media companies in meltdown?
Probably not. But when both Facebook and Twitter see their shares swiftly punished by an irritable, disappointed market in the same week – causing each company to lose about 19 per cent of value in a single day – the future certainly looks rough rather than rosy.
The numbers are breathtaking, when you’re talking about a company with Facebook’s Silicon Valley mega-valuation. For Facebook, whose shares began to plummet in the middle of the company’s earnings call with press and analysts Wednesday, the market wiped out $120 billion (€103 billion) of shareholder value in after-hours trading, the largest single day loss ever for a US-listed company (the previous holder for that unwanted record was Intel, which dropped $91 billion in a day in 2000).
For Twitter, with a far lower market cap, the share fall sliced off $5 billion of value.
For both companies, the problem, ostensibly, was their earnings reports. While each had some positive news – Facebook’s overall revenue and user numbers are still growing, and Twitter’s revenue topped analyst expectations – both had nasty devils in the details.
Facebook’s US and European growth has flatlined, and the company narrowly missed revenue targets. But investors were probably most spooked by Facebook’s warning that investors should in future expect a decline in growth and a rise in operating costs.
User decline
Twitter revealed a significant decline in user numbers – down a million from the previous quarter – and said it expected user numbers to fall further.
But for both companies, the real issues and causes of their ongoing woes are directly related to their poor management of users (whether to monitor and remove, or to protect them), the ease with which their platforms can be manipulated to try to influence public discourse and critical events such as elections, and weak data management policies, especially in the case of Facebook.
Twitter has seen its user numbers fall because it has been cleaning out fake and automated “bot” accounts, and has more still to do in this regard. As for Facebook, it lost three million European users in the period after the Cambridge Analytica (CA) data misuse story made headlines and a campaign was launched worldwide to encourage people to leave the platform.
Data privacy
The General Data Protection Regulation (GDPR) must now be factored in on an ongoing basis, too. David Wehner, Facebook's chief financial officer, noted that the company would likely lose money as it began to give users "more choices around data privacy", a decision he attributed to Facebook's response to Cambridge Analytica but, in reality, was required in the EU by GDPR anyway, and desired by users elsewhere.
Greater (and badly needed) protections for consumers, and the requirement that these gigantic platforms become more responsible for the content they carry, will continue to affect revenue and force difficult cultural changes in such companies.
But they are only what they are today because their wild growth and revenue directly benefited from weak regulation and the ability to turn a blind corporate eye to the problems they are now being forced to address.
