Facebook lost more than US$120 billion in market value yesterday after its Q2 earnings report missed Wall Street projections on both revenue and daily active user growth.
While the numbers fell only just short of market estimates, the report led to Facebook’s share price decreasing 20% in after-hours trading. Despite a very difficult year for the company, plagued with negative issues such as the Cambridge Analytica scandal and fake news distribution, analysts were still surprised at Facebook’s failure to grow advertising revenue in line with expectations.
Facebook reported US$13.038 billion in ad revenue for the quarter, which is a 42% year-on-year increase and clearly still a healthy figure, but was below market projections. Of that, the company’s strength in mobile advertising was clearly displayed, with Facebook saying mobile ads accounted for 91% of ad revenue, up from 87% in Q2 2017.
Regarding Asia-Pacific specifically, Facebook ad revenue grew to US$2.297 billion in Q2 2018, a US$739 million increase from Q2 2017.
However, investors were spooked by Facebook CFO Dave Wehner's comment on the earnings call that the company expects “revenue growth rates to continue to decelerate in the second half” by “high single digit[s]”. Yet in spite of Facebook’s brand reputation taking a heavy battering in the last few months, earnings per share actually rose from US$1.69 in Q1 to US$1.74 in Q2.
Also worrying for investors was Facebook’s slowdown in acquiring new active users. Both daily and monthly active users grew 11%, which is Facebook’s slowest growth to date and fell below analysts’ predictions. However, a significant portion of user growth came from Asia-Pacific, in particular India and the Philippines.
On the earnings call, Facebook put a different slant on user numbers, saying that 2.5 billion people monthly were using any of its stable of apps—Facebook, Messenger, Instagram and WhatsApp.
In fact, Instagram remains Facebook’s key revenue growth driver and “advertising powerhouse”, according to Yuval Ben-Itzhak, CEO of Socialbakers.
“In June the platform hit 1 billion monthly users, and in comparing Facebook and Instagram ad share, we saw that Instagram’s share of ads has gone from 10% to more than 50% in just over a year,” he said.
Mat Harris, VP product at Sojern, said he expects advertisers to continue to shift their digital ad spend to Instagram. “The rise of Instagram influencer marketing and the visual appeal of the content on the Instagram platform will fuel significant advertiser demand as we head into the holiday season,” he said. “The US$1 billion purchase price that Facebook paid for Instagram in 2012 is certainly proving to be money well spent.”
Observers said flatter growth for both revenue and users, particularly in Europe, may be linked to the enactment of the EU’s General Data Protection Regulation. Sheryl Sandberg, Facebook COO, said on earnings call that GPDR “has not had a significant [ad] revenue impact, but we also recognise it wasn’t fully rolled out this quarter”.