Daily Management Review

Maturing Business Causing Slow Growth, Warns Facebook As Expenses Remain High


Maturing Business Causing Slow Growth, Warns Facebook As Expenses Remain High
With its business maturing, its growth will continue to slowdown, Facebook warned while reporting a disappointing increase in its expenses for the latest quarter which disappointed analysts who were expecting that the largest social media company in the world will be able to level of f the costs of improving privacy.
The warning was a clearer sign for analysts and investors that the period of astronomical growth for the company was behind it and this was reflected in the mood of the investors as the shares of the company dropped by 7.2 per cent following the warning.
At a growth rate of 25 per cent, the fourth quarter revenue growth was the slowest for Facebook ever for the quarter. The pace of growth will be slower still in the first quarter of 2020, said the company’s chief financial officer, David Wehner while on a conference call with investors. Arguing the fact that the business of Facebook is fast maturing, Wehner forecast a drop of a percentage point in the growth rate which he predicted to be in the low- to mid-single digits. He also pointed out to the impact on the business because of stricter privacy regulations globally as well as concerns about the ad targeting policy of the platform.
“We have experienced some modest impact from these headwinds to date. The majority of the impact lies in front of us,” Wehner said while specifically mentioning the changes made by Apple Inc and Alphabet Inc’s Google – both of the companies have announced significant changes and restrictions in their cookies policies that are used for tracking online activities of users.
In recent years, the user privacy policy and its lackluster implementation by Facebook, the second largest seller of online ads, has come under close scrutiny and criticism globally. The company has also come under fire for not being proactive enough to prevent the spread of misinformation through its platform.
Some measures had been taken to curb the criticism on the issues since the middle of 2018 after a spade of privacy related scandals and incidents of hacking of and sealing of user information from its servers. Those measures have resulted in increased expenses for the company by more than 100 per cent, partly because of hiring of staff for scrutiny of content and investments for moderation of content.
However last year, those investment started to decline which drove analysts to conclude that the company was nearing completion of the building the new systems and has been able to find ways to efficiently implement the measures and thereby reduce such costs further. But for the fourth quarter, the company reported an increase of 34 per cent in its total costs and expenses at $12.22 billion which was 14 per cent greater the expectations of analysts. That increase in expenses was instrumental in bringing down the operating margins from 46 per cent a year ago in the same quarter to 42 per cent in the fourth quarter.