Will investors ditch Facebook?
Social media giant to release first earnings report since scandal
Investors will be looking to Facebook’s first-quarter earnings report Wednesday for signs of any financial fallout from the Cambridge Analytica privacy scandal that threatens the social media giant and other companies that grow on the back of data mined from users.
Mark Zuckerberg, Facebook’s co-founder and CEO, acknowledged during U.S. Congressional hearings last week that consequences from the company’s handling of personal information could crimp earnings both because of escalating costs to monitor content and greater government oversight, which could in turn put limits on the kind of data Facebook makes available to advertisers.
Advertising accounted for nearly all of the company’s US$40.6 billion revenue last year, with the mobile segment the primary catalyst even as user growth slowed more than expected in the fourth quarter.
Year-over-year growth in ad spending on Facebook moderated to between 19 and 24 per cent in the first quarter, according to research firm OTR Global, versus growth as high as 30 per cent in the preceding three months. OTR, which cut its rating on Facebook shares to mixed from positive on Wednesday, said ad revenue on the platform fell 10 per cent in March due to data harvesting concerns.
Earlier this month, Sheryl Sandberg, Facebook’s chief operating officer, told reporters that the company has “seen a few advertisers pause with us.”
Ad agencies say they have been forced to take stock of the value of Facebook and analysts are raising questions about whether revenue gains on ad pricing expected in the first quarter can be sustained.
According to Bloomberg Intelligence, Facebook will post 24 per cent year-over-year earnings growth to $1.68 per adjusted share in the January quarter thanks to price hikes for ads and Instagram growth, although expenses for 2018 may be higher due in part to hiring for content security. Revenue is forecast to increase by more than 40 per cent to $11.4 billion.
Risks for Facebook on the regulatory front, meanwhile, stem largely from the U.S., where policy-makers are considering reforms to a hodgepodge of data protection and privacy statutes, and the European Union, which says it will enforce new data privacy laws following the Cambridge Analytica scandal.
Barry Schwartz, chief investment officer of Toronto-based Baskin Wealth Management, said regulators could take aim at “predatory practices” in digital data gathering and even Facebook’s near monopolistic market share.
There are also investor calls for Zuckerberg to step aside as Facebook chair.
Facebook is facing a potential exodus from the platform after the data of some 87 million users, including more than 600,000 in Canada, was surreptitiously collected and channeled to the U.K.-based political consultancy that worked for Donald Trump’s 2016 presidential campaign.
Zuckerberg, however, testified before a House committee that the #deleteFacebook movement has gained limited traction. An Angus Reid public opinion survey taken in Canada after news of the scandal broke in mid-March found that only one in 10 respondents planned to abandon the ubiquitous platform.
Facebook, which says it has more than two billion active monthly users, including 23 million in Canada, is part of daily life “in a way that compares to few other corporations,” a report on the survey says.
As such, it’s unlikely that users or advertisers will bolt en masse, said Phillip Capital senior analyst Paul Chew, because “they would be hard pressed to find an alternative.”