Ouch! Facebook

Facebook’s (Nasdaq: FB) recently announced second quarter results are making the market wonder if the company has finally lost its charm. The company has been dealing with the controversy around fake news and growing privacy concerns for a while now. Recent results suggest that those issues may be finally taking a toll on its usage metrics.

Facebook’s Financials

Facebook’s Q2 revenues grew 42% over the year to $13.23 billion, missing the market’s estimates of $13.43 billion. EPS of $1.73 was also short of the Street’s forecast of $1.74 for the quarter.

By segment, advertising revenues grew 42% over the year to $13 billion. Revenues from payments and other fees grew 23% to $193 million.

Besides missing financial metrics, the company also delivered very weak operating metrics, delivering the slowest-ever user growth rate. Monthly user count grew 1.54% compared with 3.14% a quarter ago. Daily active users grew at 1.44% compared to 3.42% last quarter. This was the first ever quarter that Facebook saw user base shrink in Europe and go flat in the US and Canada. European user base slipped from 377 million to 376 million, suggesting the impact of Europe’s stringent GDPR privacy law requirements. US & Canada subscriber base was flat at 239 million for the quarter. Stalling growth rates in these markets could spell a bigger problem for the company as they are its biggest revenue-generating markets.

And, things aren’t expected to improve soon. Facebook announced that its total revenue-growth rate will continue to decelerate in the second half of 2018. It also expects revenue-growth rates to decline by high-single-digit percentages from prior quarters sequentially in both Q3 and Q4, while expenses are expected to grow 50%-60% over the year as it invests in security and content.

One of the reasons for the shrinking usage metrics has been concerns on the addiction that Facebook drives. A recent BBC documentary revealed how social media companies including Facebook and Twitter were building their platforms to make them addictive. Former Facebook executives have mentioned how the company is “exploiting a vulnerability in human psychology” by designing features such as the Like button, and the infinite scroll that make users want to keep spending time on Facebook.

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