Facebook's first loss of customers in Europe resulted in a 20 percent drop in its market capitalisation. Is this the beginning of the end for Facebook or will the share price recover in the coming months? The fact is Facebook is the undisputed leader of the broader communications market, including social networking, with the services Facebook, Instagram, WhatsApp and Messenger. The network effect can't be undone with a snap, and the range of its services gives Facebook a hedge: if customers leave Facebook, they come back on Instagram. Nevertheless, it still has two big problems: privacy and fake news. Government regulation and shareholder revolt are hanging over the company.
Facebook's second-quarter results did not show much wrong. Its growth is still very high. Operationally it's still doing very well, with high total growth and high growth outside North America and Europe. ARPU is increasing in all regions. The concerns are stagnating growth in North America and the first setback in Europe. On a quarterly basis, the daily active users fell from 282 to 279 million and the monthly users from 377 to 376 million in Europe.
The halt in growth in Europe is not due to saturation but to unsatisfied users. In the Netherlands, our research shows already for some time that young people are turning away from the social network, but if they remain with the company as Instagram users, the hedge is working. Furthermore, there are few alternatives, apart from much smaller providers: Twitter, Snap, Pinterest, Viber, Slack, Discord (takeover candidates?) and the communication services provided by Apple (FaceTime) and Google (Duo, Chat, Android Messages).
Not surprising that Facebook has come up with a new statistic: "For the first time today, we're also releasing how many people use at least one of our apps, Facebook, WhatsApp, Instagram or Messenger, and that's 2.5 billion people each month. This number better reflects our community for a couple of reasons. First, it refers to individual people rather than active accounts, so it excludes when people have multiple active accounts on a single app. And second, it reflects that many people use more than one of our services."
An open question is whether the Data Transfer Project, in which Facebook is participating, good is for the market leader or if the ability to port user information makes it easier for a newcomer to enter the market.
Damage control
Facebook now needs to ensure that it keeps customers on board with Instagram, as well as WhatsApp and Messenger. The underlying problem is the double issue of privacy and fake news.
The trade in personal information is upsetting some users and there appears no end to the bad news.
The so-called fake news has further consequences and is affecting all the platform providers (also Twitter, YouTube etc.). Is self-regulation enough? Or does the state need to step in? For Facebook, there's also a governance problem given founder Mark Zuckerberg appears to have sole control. Some large shareholders have already called for change. The first call for breaking up the company has already been heard, even if it is completely unclear how Facebook could be divided.
