The big picture: Facebook had a great quarter, but fixing some of its security and privacy issues incurred a 51 percent increase in its cost of business, which has investors worried this may just be the start. The latest antitrust and privacy issues have started to take a toll on the company, so the future looks a little less bright ahead.
Facebook’s latest quarterly earnings are out, and it looks like the company had a very impressive 2019. However, investors don’t seem to be sharing the enthusiasm as the stock fell almost 8 percent in after-hours trading, effectively evaporating $50+ billion from its market value.
The social giant raked in almost $71 billion in revenue in 2019, and as expected, 98.5 percent of that came from advertising. As CEO Mark Zuckerberg indicated during the investor call, Facebook will maintain its ad-supported model, so that percentage won’t change much in the foreseeable future.
For the three months ending in December 2019, Facebook saw a little over $21 billion in revenue, which is a strong 25 percent increase year-over-year. According to COO Sheryl Sandberg, the company added one million advertisers to its network, for a total of 7 million advertisers big and small as of October 2019.
This all sounds good until you stumble upon the fact that Facebook’s costs and expenses increased 51 percent when compared to 2018, which might explain why investors aren’t happy about the report. On the positive side, these added expenses covered privacy and security upgrades, which means the social giant has cut into its operating margin for some much needed improvements for end users.
With an average revenue per user sitting at a record $8.52, you’d think the company has little to worry about, but it’s quite the contrary. Facebook is already squeezing as much revenue as it can from advertising to its 2.9 billion users, and it’s taking a huge risk on selling ad space to Chinese companies.
To put things in perspective, the company is stuck between regulators scrutinizing its business practices, critics slamming its political ad policies, and trying to launch Libra, its own cryptocurrency.
The path ahead is difficult, but Facebook does have a few places where it can do more to improve its bottom line. Notable examples are Oculus — which operates in the VR market that is still waiting for its big moment — and Facebook Pay, which allows people to use the company’s messaging apps to send and receive money. But more importantly, the social giant has to regain the trust of its users after repeated failure to ensure their privacy and security.