Growing, Growing, Gone: Breaking Down Facebook’s Sobering 2018 Forecast

Why no grow?

Wehner gave three reasons for his gloomy guidance: currency headwinds, a slower monetization rate for new ad products, such as Stories, and the fact that Facebook is offering users more choice on how to manage data and privacy.

Beyond policy changes, cleaning up the platform doesn’t come cheap. Facebook is investing billions per year on its safety and security efforts, Wehner said.

But Facebook’s own size and its reliance on an ad-driven monetization model also are major factors in the platform’s revenue growth slowdown.

A platform as large as Facebook can’t continue to grow forever. There’s simply a limit to the size of the human population and the amount of time in a person’s day. Recent atrocious headlines are only speeding the process along a bit quicker.

“Such a development should not be surprising,” wrote Pivotal analyst Brian Wieser in a note following Wehner’s comments. “Digital advertising and advertising more generally has real limits to growth, although we recognize that most of the investment community has ignored this consideration.”

It’s the perfect storm of controversy and the inevitable slowdown of user engagement with a few wildcards, like GDPR, thrown in.

Users not so friendly

Facebook use was mostly flat in North America and Canada, as it’s been since mid-2017. Worldwide, Facebook added only 22 million daily active users for the quarter, the most diminutive user growth rate in around seven years.

But Facebook still has Instagram, WhatsApp and Messenger to shore up its growth story. For the first time, Facebook this quarter shared what it’s calling a “familywide audience metric,” Facebook’s best estimate of its deduped audience. In June, 2.5 billion people around the world used at least one Facebook app.

Although Facebook will continue to break out numbers for its monthly active users – 2.23 billion last month – providing a blanket metric is a handy way to disguise any user slippage from core Facebook. How can an advertiser argue with 2.5 billion users, regardless of where they are?

With that in mind, some investors, including Wells Fargo analyst Ken Sena, are still firmly in the bull camp. Although Q2 user levels for Facebook overall weren’t anything to write home about, the promotion of Stories within core Facebook still has a lot of monetization runway, Sena wrote in an investors’ note.

Facebook is heavily promoting its engagement experiences – Stories, in particular – across Instagram and the core platform, and there’s a “robust” opportunity despite Facebook’s revised downward guidance, Sena wrote.

Possible trouble across the pond

Turning to Europe, however, monthly and daily active users actually declined by 1 million and 3 million, respectively, which perhaps was to be expected. The General Data Protection Regulation went into effect at the end of Q2.

Facebook COO Sheryl Sandberg told investors that GDPR had no palpable revenue impact this quarter and that she was encouraged that most users “affirmed that they want us to use information, including from the websites the visit, to make their ads more relevant.”

Sounds good on its face, but the company is far from “out of the woods,” according to Wieser.

“The bundling of consent for Facebook to use consumer data with access to the platform appears to be an aggressive interpretation of GDPR,” he wrote, “and one that might be more subject to eventual regulatory action.”

This post was syndicated from Ad Exchanger.