Pressure from governments doesn’t bother Facebook for now

Pressure from governments doesn’t bother Facebook for now

23 October 2020Reading time: 3 minutes

On July 30, Facebook presented its second-quarter results, which showed that the American technology company continues to grow strongly despite the special circumstances. For example, the total annual sales increased 11 percent to USD 18,687 billion. Of this, USD 18,321 billion came from advertising revenue. On an annual basis the net profit was 98 percent higher at USD 5,178 billion, resulting in an earnings per share of USD 1.80. The number of daily active users increased by 12 percent to a total of 1,79 billion. In addition to Facebook, this number also includes users of Instagram and WhatsApp.

Securing future growth

Facebook will present its third quarter results on October 29. The company expects a similar result for the second quarter. Therefor it seems that there will be no large changes for Facebook concerning their growth. For the long term, however, the question is how the technology giant will maintain its growth figures. Facebook now serves 40 percent of the total world population with its services and market experts therefore expect a growth stagnation in the number of users of the social media platform within a few years.

For the next five years, research company eMarketer expects the digital advertising market to grow to USD 517 billion by 2023, meaning Facebook's revenue stretch isn't over yet. It remains to be seen, of course, how Facebook's revenue growth will actually develop in the coming years.

Facebook has now entered a new growth market, by focusing more on services via hardware. A good example of this is the Oculus Rift Virtual Reality glasses. At this moment, the technology giant gets a very small part of its turnover from virtual reality products, but over the past quarter the turnover of this segment increased by approximately 40 percent on an annual basis.

Too much power

A potential risk for Facebook currently lies mainly around the anti-trust laws. The recently published anti-trust report shows that Facebook, Amazon, Google and Apple have too much power over the American internet market. The report even claimed a monopoly position without any form of healthy competition. The study therefore recommends splitting up the aforementioned tech companies, to create a better market competition.

The European Commission is also working on a stricter regulation policy to limit the dominant position of companies such as Facebook within the EU. This policy should, among other things, ensure more transparency and the possibility of smaller competitors entering the European internet market.

Stock price development

After the announcement of the stricter European policy early September, the share price of Facebook declined. Since then, the stock price has recovered and is now (16.10.2020) at USD 266.72. This means that the stock price is now 40.71 percent higher than a year before.

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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05/12/2020 16:32:11