Tech Stocks May Tank Today, Facebook Data Debacle Blamed
Tech stocks may tank today, largely due to Facebook’s below-expected-growth Q2 earnings report, and analysts are blaming the recent data debacle. Marketers who still don’t have a handle on data privacy may see this as a bellwether and get their houses in order.
While CNBC’s article yesterday, “Tech Stocks Set to Crater on Thursday With Facebook on Track for Biggest Drop Ever,” immediately mentions GDPR and Facebook’s Cambridge Analytica data debacle as the reasons for today’s probable tech stock plummet, there’s another possibility for Facebook’s slowing growth. Facebook leaders have mentioned for awhile that user growth may slow as it did and that they need to ensure users’ News Feeds aren’t saturated with ads in order to maintain engagement. The social media network’s been working to lure marketers to other advertising options within its portfolio, such as Instagram and the Audience Network, but Facebook remains popular with brands that noticed the decrease in monthly users this quarter. Still, Facebook stock’s 20% drop in after-hours trading did seem to support CNBC John Melloy’s hypothesis.
“Big technology stocks other than Facebook felt the collateral damage as investors fled the sector. Apple lost about 1%. Facebook's "FANG" brethren were also lower. Amazon, which reports after the bell Thursday, lost 2.3%. Netflix, which disappointed FANG investors with its own set of weak results earlier this earnings season, shed about 3% in after-hours. Google parent Alphabet fell 2.4%.”
And Facebook CEO and Co-founder Mark Zuckerberg says in the Q2 earnings report of GDPR (Opens as a PDF):
“I also want to talk about privacy. GDPR was an important moment for our industry. We did see a decline in monthly actives in Europe — down by about 1 million people as a result. At the same time, it was encouraging to see the vast majority of people affirm that they want us to use context — including from websites they visit — to make their ads more relevant and improve their overall product experience.
“Looking ahead, we will continue to invest heavily in security and privacy because we have a responsibility to keep people safe. But as I've said on past calls, we’re investing so much in security that it will significantly impact our profitability. We’re starting to see that this quarter. But in addition to this, we also have a responsibility to keep building services that bring people closer together in new ways, as well. In light of increased investment in security, we could choose to decrease our investment in new product areas, but we're not going to — because that wouldn't be the right way to serve our community and because we run this company for the long-term, not for the next quarter.”
This tweet shows why Facebook’s earnings call could have such an effect on an entire market sector (tech stocks):
This is bonkers: Facebook’s market value fell $120 billion after its earnings report, more than the value of all but a relative handful of public companies. Yet it may not fall even one spot in the rankings of companies by market cap. https://t.co/2hclE6S1s5
— Ben Casselman (@bencasselman) July 26, 2018
Taking a Deeper Dive Into What Marketers Learned in Facebook’s Earnings Call
TechCrunch’s Josh Constine writes that Facebook’s user growth “hit a wall” because of public backlash about how the social media network handled its scandals in Q2. Constine says:
“Facebook reached 2.23 billion monthly users, up just 1.54%, much slower than Q1’s 3.14%, around where its growth rate has hovered for years. Facebook earned $13.23 billion in revenue, missing Thomson Reuters consensus estimates of $13.36 billion.”
But Zuckerberg seemed to give marketers hope during the earnings call, while he talked about benefits users are experiencing. He outlined how 200 million users have joined groups that clearly show their interests online and that transfer to their offline activities, such as new parent communities and groups for patients with rare diseases. Zuckerberg says Facebook has a 5-year goal of seeing 1 billion users join groups. We think this may mean enhanced targeting possibilities for marketers.
Zuckerberg mentioned increased use of its fundraising tools.
Also, growing use of Instagram means launching the video option in Q2, IGTV, will make long-form mobile video easier. Considering he also then mentioned the expansion of Facebook Watch, we predict Facebook will offer marketers more video options soon — beyond the ones mentioned in the earnings call.
“We're also making progress developing Stories into a great format for ads. We've made the most progress here on Instagram, but this quarter we started testing Stories ads on Facebook Too.”
Facebook COO Sheryl Sandberg says the business side of the platform is leveraging mobile, creating new ad products, and making ads more relevant and effective.
“Last quarter we released Ads Animator, a simple way to create eye-catching video ads using photos and other content that’s already on a company’s Facebook Page. We’re also testing Video Creation Kit, which gives advertisers easy-to-use video templates for different marketing objectives. By learning what performs best across our platform, we can help other businesses succeed.
“We’re also making it easier to run ads on Instagram and in Stories. Ads in Stories are an immersive, engaging way for people to interact with businesses.”
As for making ads more relevant and effective, she said:
“Last year we introduced Test & Learn, a way for advertisers to run variations of their ads and measure the results in just a few steps. We started with tools for direct response advertisers to figure out what drives conversions. In Q2, we added a way for companies to understand the effect of their ads on brand perception. We plan to roll this out to all advertisers — big and small — so they can easily experiment with different strategies and find the ones that work best.”
What do you think, marketers?
Please respond in the comments section below.
Related story: Facebook’s New Tools Meant to Up Ad Inventory