That’s what they said. It doesn’t get much clearer than this:
Turning now to the revenue outlook. Our total revenue growth rate decelerated approximately 7 percentage points in Q2 compared to Q1. Our total revenue growth rates will continue to decelerate in the second half of 2018, and we expect our revenue growth rates to decline by high single digit percentages from prior quarters sequentially in both Q3 and Q4. … Turning now to expenses. We continue to expect that full-year 2018 total expenses will grow in the range of 50-60% compared to last year. In addition to increases in core product development and infrastructure, this growth is driven by increasing investments in areas like safety & security, AR/VR, marketing, and content acquisition. Looking beyond 2018, we anticipate that total expense growth will exceed revenue growth in 2019. Over the next several years, we would anticipate that our operating margins will trend towards the mid30s on a percentage basis.https://s21.q4cdn.com/399680738/files/doc_financials/2018/Q2…
What’s extra interesting about that is, unless I’m mistaken, they don’t usually give guidance of any kind.
But the point is, yes, Facebook’s growth will be slowing down. And they’ll be sacrificing a bit of profitability. Probably this is the sign that they’re a mature company and no longer right for this board. But the stock isn’t completely unattractive. At a PE of ~24, they’re certainly not expensive. I don’t think EPS will go down, it just won’t be rising as fast.
Conclusion: I’m not going to rush out and buy Facebook. It may see a short term rebound, but I don’t expect it to ever again grow like it has in the past. (I also don’t expect it to crash.)
I sold Facebook when Z said he would be “adjusting” but then bought it back because of all of the stuff he has added.
The platform is a much better place than last year and my Facebook time has gone way up. My Craigslist searches are becoming Facebook searches, my Yahoo groups have become Facebook groups.
So, once again I am wrong, and I will take my losses on the bounce. Unless someone can make a case for valuation.
For Facebook public opinion matters. For FB government regulation ( or a minimal amount of it matters). These things are essential to the business model. Last quarter FB had a huge public relations ( and government relations) crisis. Zuck committed to fix it. He went in front of Congress and committed to hire 20,000 new employees to help ensure safety and security. To protect FB’s users. Now, I recently read that FB’s employees have a median pay of $240,000 per year. Not average, median!! When you multiply those figures, you get an added annual cost of $4.8B. There’s no extra revenue associated with these extra 20,000 employees so of course it’s an added expense and of course it’s going to be a massive hit to operating margins. Why was the market so surprised when they said they would do it? One questions that I have is if and when will FB be able to do this safely and security monitoring by automated analytics and AI. If they can then maybe they will no longer need 20,000 to babysit. Until then profitability and operating margins will remain impaired relative to previous levels.
GC: Zuck committed to fix it. He went in front of Congress and committed to hire 20,000 new employees to help ensure safety and security. To protect FB’s users. Now, I recently read that FB’s employees have a median pay of $240,000 per year. Not average, median!! When you multiply those figures, you get an added annual cost of $4.8B
Given Z’s history of committing to anything, and then doing nothing (or very little), I think his ‘commitment’ of 20,000 new hires can be taken with a large crystal of NaCl.
FB has a spotlight on it right now, from here in the US and from the EU. Look for more ‘uncomfortable’ drill downs from regulators on both sides of the pond.
Maybe it’s just me, but I think Mr. Z displays that smugness and arrogance thing in spades, and folks bristle when they see it. Expect more uncomfortable questions and accusations directed towards FB in the next 12 months. Ad revenue slowdown can only exacerbate his situation.
How many of those 20,000 have they actually hired, and how much are they getting paid? And how many will end up getting hired, and for how long?
It is amazing that the median pay is that high, even in that part of California.
BTW, Amnesty International has volunteers searching through social media sites for harassing posts and reporting them. (My specific experience with this is an email I got from them about Twitter.) It seems very likely that other organizations do the same thing, from various parts of the political spectrum.
Some of this could be free QA service for Facebook, Twitter, etc.
“Over the next several years, we would anticipate that our operating margins will trend towards the mid-30s on a percentage basis.”
Wait a second. What?
Facebook’s operating margin was 50% in 2017. I believe it should trend higher still, as it has done for the past five years, as much of Facebook’s revenue gains are from higher revenues per user (and led by pricing gains on their ads), which have little incremental cost associated with them.
But this guidance is for margins to drop by almost a third over the next 3-5 years. That is an enormous change, and, I believe, the reason for the near 20% drop in Facebook’s share price."
"Implications
I believe Facebook’s new guidance for operating margins is too low. This guidance implies massive cost growth that would either: (i) ensure that Facebook remains unprofitable outside of the US & Europe despite having more than 2bn users in those regions; or (ii) allow the firm to triple their current R&D spend and hire tens of thousands of extra people at very high salaries.
I believe that neither of these alternatives are realistic paths for Facebook to follow. This means Facebook’s new margin guidance is extremely conservative, and potentially intentionally this conservative, so that Facebook can be seen to be making the investments in privacy that ensure their users remain comfortable using Facebook’s social media platforms."