Facebook

Facebook

23 August 2019Reading time: 3 minutes

Besides their own social media platform, Facebook also exploits Instagram and WhatsApp. In total, 2.7 billion people worldwide use one of these platforms every month.

The American company warned earlier this year that earnings in the second quarter would be lower than expected. The net result of Facebook eventually decreased with 49 percent to 2.6 billion dollar on an annual basis. The main reason for this is that the costs rose by 66 percent to 12.3 billion dollar. The increased costs are mainly due to the settlement between Facebook and the American FTC (Federal Trade Commission) of 5 billion dollar as a result of the Cambridge Analytica privacy scandal. Facebook also generated extra costs for the adjustments of their own privacy policy.

It remains to be seen if these investments will suffice or if more fines might follow. Several governments are looking to set up new legislation for technology giants such as Facebook.

Despite these financial setbacks, Facebook doesn’t seem to worry that much about their own results.

The second quarter revenue rose on an annual basis with 28 percent to 16.9 billion dollar. The majority of this increase is the result of higher advertising income. Because the total number of active users is still increasing, companies remain interested to advertise on Facebook’s social media platforms. The number of monthly users rose by 8 percent to 2.41 billion on an annual basis. However Facebook is still the largest social media network worldwide.

The earnings per share rose by 41 percent, excluding one-off charges. Also the cash flow improved on an annual basis with 8 billion dollar to almost 49 billion dollar.

A research from Pew Research shows that Facebook is a dominant player within the online news industry. Approximately 43 percent of all Americans claims to use Facebook as a news source. Remarkably the same respondents are also indicating to not always trust the news content that the read on social media.

In any case, Facebook wants to focus more on sharing newsworthy content. It remains to be seen if the company can maintain its dominant position in this segment. It so happens that competitors are also successfully focusing themselves on becoming a news source. Twitter for example, has recently invested in more relevant news content for their individual users and Snap works on improving and extending their news content. In order to do so, Snap has set up partnerships with The Wall Street Journal and The Washington Post.

The stock price of Facebook has plummeted more than 10 percent since the publication of the second quarter results and is now (19-08-2019) at 183.70 dollar. Compared to the beginning of this year, the stock price is now more than 35 percent higher.

The future price of the stock is subject to several political, industrial and sector specific as well as economic factors. Investors should consider these risks when making their investment decisions. Developments can be different at any time than investors anticipated on, which could result in capital losses.

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Vontobel products on Facebook are tradable at DEGIRO.

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18/09/2019 20:02:08