Peak Facebook
The race is on to figure out what’s next after what’s next…
Note: this post was adapted from my newsletter earlier this week.This week, Facebook took a bath. A bloodbath. The company lost over $120 billion in value in a single day — by far the most ever for one company in that short of a span.¹
But what’s crazier to me is how such a drop happened. Facebook’s earnings were generally fine. A little light perhaps, but fine. It wasn’t until the company started talking during the earnings call that the run occurred. (There seems to be a clear trend of something bad happening every single time the company opens its collective mouth in some capacity.) And mostly it seemed to be about the guidance that the CFO gave, and the way in which he gave it.
At a high level, the numbers and the guidance sure seem to point to “Peak Facebook”. User growth is slowing because Facebook is running out of people who aren’t yet on the network — which is insane, but was always going to be true in the ultimate success state they’ve achieved. Meanwhile, those who aren’t yet on Facebook (and in many cases, aren’t yet on the internet in general), are unlikely to be nearly as profitable as the initial user bases have been. (The more profitable ones, like kids in the U.S., seem just as likely to be “Facebook Nevers”.) At the same time, Facebook is altering the product to make it generate less money — which sounds magnanimous, but is actually just necessary to keep people using the product and to stop fake news, etc. So it’s a perfect storm of factors that led to the Tower of Terror-style drop (below) in the stock price.
Facebook’s saving grace — soon, perhaps literally — remains Instagram. And it’s no surprise that Mark Zuckerberg kicked off his comments talking about how great things are going over there. But the issue is still that the company doesn’t yet know if it can be as profitable as Facebook itself has been. And the answer is probably not, because we’ve seemingly crossed a chasm in terms of ad load users are willing to put up with. The feed was highly conducive to this: ads for people to passively scroll by. The more active Story format? Likely less so. Still good, mind you. But not what Facebook has been used to.
So again, in a few ways it feels like we may have just seen “Peak Facebook”. I realize that’s a dangerous thing to predict — Facebook has been “over” almost as many times as Apple has been “over” in the past decade (and I do think the stock will bounce back, by the way). But as growth and monetization slow, Facebook has to start pouring more and more resources into what’s next. Instagram is and has been the obvious answer, but again, only for so long — it too is already past a billion active users now. It will follow the trajectory of Facebook.com and then Facebook on mobile: bulk up the user base, then milk it dry.² They need to figure out what’s next after what’s next.
¹ The only other ones in the ballpark were around the actual, capital ‘B’ Bubble and the financial crisis — though shout out to our turbulent 2018 for having so many massive drops.
² This may be the gameplan with WhatsApp now too, sadly.
