On a day when Facebook announced third-quarter profits up 79% at a whopping $4.7 billion on the back of a 49% increase in turnover up to $10.1 billion why was Mark Zuckerberg so downbeat? Surely this was the time to push home growing profits momentum and expansion plans which seem to be progressing perfectly? However, testifying to legislators in Washington, Facebook was on the back foot, under pressure over the rise in fake news and alleged Russian interference in the US presidential elections.
The facts
Even though Facebook CEO Mark Zuckerberg was able to separate the facts from the fiction, confirming that so-called Russian agents spent just $46,000 advertising on Facebook, compared to a combined expenditure of $81 million by the Trump and Clinton campaigns, this is not the whole story. It turns out that the Russian adverts reached a staggering 126 million Facebook users and may or may not have influenced the outcome of the US presidential elections. There is also the issue of terrorism, and several types of abuse which still appear on Facebook, even though the company spent millions of dollars in additional security measures.
In many ways Mark Zuckerberg was in a no-win situation, if he talked up the prospects of future profits growth for Facebook, while talking to legislators at the same time, how would this look? In many ways he took a sensible approach by effectively ignoring today’s impressive profits and focusing upon the challenges ahead, large investment in additional security measures and the fact this would reduce profits in the short to medium term.
Regulatory issues
Facebook reaches a staggering 2 billion people a month with 1.3 billion people using Facebook every day. The power this has given the company is there for all to see with a changing trend in advertising meaning that mobile advertising income is the way ahead, accounting for 88% of revenue in the third quarter. As other social media channels crash and burn, Facebook continues to grow often by mimicking rival social media services such as those offered by SnapChat. Business is business but there is no doubt that Facebook is chocking many competitors and those it can’t outmanoeuvre in the marketplace it simply purchases, often for undisclosed amounts.
There are few companies in the world today which have the same level of influence as Facebook. We have seen challengers come and go, other company’s crash and burn but Mark Zuckerberg continues to push the group forward with a level of aggression which can be frightening.
Will investors see the long-term picture?
After today’s third-quarter figures the company’s shares now stand at $182 having reacted positively to the news. At this moment in time it seems that investors are willing to look more towards the medium to long-term and discount any additional investment required to create a more secure online community. In many ways Facebook has been forced to take this chance as regulators appeared ready to swoop and take their own action.
The company will be under constant political pressure in the weeks and months ahead but playing down today’s record figures and focusing more upon stamping out abuse and unacceptable content seems like a sensible move. So far investors appear willing to accept short-term pain for long-term gain, but Mark Zuckerberg will need to deliver on all fronts.