Social media giant Facebook, after its latest earnings report, witnessed a near than 20 percent drop in its stock price. This follows the recent data leak scandal, so it was partly expected.
However, the data scandal is not the only reason for this drop in its stock price. The problem seems to be bigger than that.
No New Users, Because Everyone is Already on Facebook
Facebook appears to be saturating. It has around 2.23 billion users already, which is close to 70 percent of the Internet-using population of the world, according to Bloomberg. It is struggling to grow further.
Another reason for the diminishing user base could be that more people are joining Instagram, a Facebook-owned photo-sharing app that now offers almost as many features to play around with as Facebook does.
Facebook’s main revenue strategy has been ads on news feeds. To make more money, it has to serve up more ads on news feeds and for that it has to get more users to sign up.
Since the number of users doesn’t seem to be growing anymore, it looks like further revenue for Facebook will be mostly through businesses like video content, virtual reality and ads on its chat applications.
An indicator of its struggle is that its second quarter growth this year has been the slowest ever (data scandals played a part here). At the same time, Facebook has toned down ads as that also plays a part in turning people away from the platform.
Difficulties in Keeping Investors Happy
Facebook had acquired WhatsApp for about $22 billion in 2014 and launched its messaging app, Facebook Messenger in the same year. CEO Mark Zuckerberg had said the company will start making money off these platforms once they cross 1 billion users, the Bloomberg report states.
Now that these platforms are beyond a billion users, Zuckerberg says the company is still experimenting with business models. That’s not what investors would like to hear.
Are the New Business Models Enough to Hold Investors?
New business models that Facebook is adapting is not what investors are keen on as they bring in minimal margins. One example is making hardware like Virtual Reality headsets – which is expensive to manufacture and needs to be sold at discounted rates initially.
It is also planning on a new internet television that has already cost Facebook multiple millions of dollars in content deals while also planning on splitting revenue with creators.
Adding to that, The New York Times reported that Facebook has said it is willing to hire about 20,000 people by the end of 2018 to help review content posted on the site and to work on its security team.
Facebook has also said that its revenue will be impacted a little because it is giving users more control over their privacy settings. And since its advertising revenue depends on how accurately advertisers target customers according to their data, this also hurt Facebook’s ad revenue, The Verge reported.
Since Facebook has had an image of constantly growing, now that its reaching a saturation point, the company is facing difficulties in coping with the responsibilities that come when you are the biggest player in a certain industry.