Facebook Earnings Sizzle While Platform Usage Fizzles

What sizzles and fizzles at the same time? Dry ice, perhaps? If so, then Facebook was the dry ice of corporations this week, reporting a sizzling 47 percent jump in quarterly revenue year-over-year – while at the same time fizzling among users, who are spending 50 million hours less per day on the site than at this time last year.

In addition, Facebook previously reduced viral videos and announced an overhaul of its news feed in an effort to stem the spread of sensationalism and deter foreign influence campaigns like those from Russia, which allegedly contributed to the election of President Donald Trump.

The company said not to worry; its digital ad business will remain highly profitable, and there are more opportunities to make money from the platform even if people are spending less time there.

Investors, however, worried.

On Wednesday (Jan. 31), shares fell more than 4 percent in after-hours trading, clearly demonstrating that stakeholders were not as confident as insiders at the social media giant.

Granted, shares did see a rebound later in the evening after executives expressed optimism on a call with analysts, saying the changes were in response to criticism and would be good for business in the long run. The primary culprit seemed to be the reduction of viral videos on the site.

CEO Mark Zuckerberg emphasized on the call that quality, not quantity, of time spent on the platform is the important factor, and that has always been the case. Ad quality and revenue per ad were both up, said the company, translating to better quality engagement and improved ad targeting capabilities.

Wall Street may be sated for now, but declining Facebook usage does spell potential for issues down the line. Is it truly just that people are spending less time watching dumb videos on the social network, or are users growing weary of it altogether?

The number of daily users in the U.S. and Canada saw its first decline in the company’s history this quarter. When 700,000 fewer users visit the site each day, that’s not a product of viral videos going away; that’s a sign that they just don’t want to be there anymore. If they did, they would still be there.

Facebook seems unfazed by the fluctuations, stating that it expects the pattern to continue as changes roll out. Its overall user base is still growing – up 14 percent from a year ago, though ticking in just shy of analysts’ expectations of 1.41 billion users globally.

However, despite positive trends today, there may come a time when Facebook has to confront the fact that users are walking away. Now seems the wisest time to ask why it’s happening – now, while there are still 1.4 billion users who could be persuaded to stay, and not later, when many may have already moved on to the next big thing.

Take a look at a few other sizzles and fizzles of the week.

Sizzles:

Online grocery sales: Why go to the grocery store when the grocery store can come to you? A number of consumers may be answering that question as they order home delivery for groceries over the next few years. According to a report from the Food Marketing Institute and Nielsen, 70 percent of shoppers will purchase some portion of their groceries online within five to seven years. Their online spending could reach $100 billion, which could greatly impact brick-and-mortar stores.

Blue chip earnings: It was an earnings season to remember as memory chips led Samsung to strong earnings for the fourth quarter of 2017. The tech company expects its earnings to rise along with demand for smartphones. eBay also fared well, reporting net income of 59 cents per share, which met estimates, as did Facebook, which reported earnings of $1.44 per share, up from $1.21 per share one year earlier. In addition, Mastercard met Wall Street predictions with earnings per share of $1.14.

PayPal, too, continues to report strong revenues, as it processed $155 billion in mobile payments in 2017 – a 55 percent increase over 2016 – while its Venmo unit processed nearly $35 billion in payments in 2017, up 95 percent over 2016.

Food delivery options: Showing off its ability to get a bowl with extra guac from its stores to customers’ homes, Chipotle is offering free delivery during Super Bowl weekend in a so-called “burrito blitz” to fans who use the Postmates app. The news comes as Square announced it has acquired Entrees On Trays, a restaurant delivery service that operates in the Dallas area to speed growth of its delivery service, Caviar, (which it acquired in 2014 for an undisclosed amount) and profit from Entrees’ relationships with Texas restaurants.

Fizzles:

Bitcoin’s fast slide: Bitcoin has not been having a good day, week or, well, month. With investors’ concern over regulation and possible price manipulation, bitcoin dropped below $9,000 in trading on Thursday (Feb. 1). The cryptocurrency reached the $8,810 level in late-morning trading, CNBC reported. It’s important to note that January hasn’t traditionally been a good month for bitcoin. This one is no exception, with bitcoin hitting historically low pricing levels.

China’s smartphone market: China’s smartphone market is weakening, with shipments dropping 4 percent year-over-year, according to market research firm Canalys. The BBC, citing data from Canalys, reported that the decline marks the end of an eight-year period of growth of China’s smartphone market. As a result, Chinese smartphone manufacturers may seek to grow their sales abroad.

Cryptocurrency bans: The U.S. Securities and Exchange Commission (SEC) is not too crazy about the wild world of initial coin offerings (ICOs). The ICO of a Texas-based financial company has the Commission rushing to stop what it calls an “illegal offering of securities.” And, in private industry, Facebook said it will ban ads that promote “financial products and services frequently associated with misleading or deceptive promotional practices” on its own app, Instagram and its network of third-party apps.