The Industry

Facebook’s Scandals Are Finally Starting to Hurt Its Business

Mark Zuckerberg gestures while speaking at an event.
Mark Zuckerberg, probably apologizing for something that happened on Facebook. Gerard Julien/Getty Images

Until now, Facebook has appeared to be immune to the litany of scandals its business has generated over the past couple of years, with ever-increasing growth in revenue and users and an unsinkable stock price. On Wednesday, its ability to coast on its years of success finally seemed to give out. On an earnings call with investors, Facebook reported that its revenue grew by 42 percent over the same time last year, reaching $13.2 billion for the quarter—a number that was lower than the $13.3 billion analysts expected. The slight miss may have been what sent Facebook’s stock plunging more than 23 percent after the call in after-hours trading, but more likely it’s what’s going on with some of the social network’s metrics.

For months, the company’s count of daily active users in the U.S. and Canada has been hovering around 185 million; it’s basically no longer growing. That means that either new would-be users, like teens, aren’t joining Facebook or that the social network is shedding users at around the same rate it’s gaining new ones. In Europe, Facebook experienced a drop in daily active users, down to 279 million from 282 million the previous quarter—a change likely attributable to sweeping new European privacy laws that went into effect in May. Globally, Facebook’s monthly active user base grew by 11 percent. Despite stagnant user growth in its biggest markets, Facebook continues to rake in billions in ad revenue—mostly on mobile. Mobile ad sales accounted for 91 percent of the company’s ad revenue this quarter.

But why are some users feeling chilly? It may well have to do with the compounding impact of the Cambridge Analytica user privacy crisis, the political hot water the company landed in as the scope of Russian disinformation efforts has come into focus over the past year, and the multiple visits to Congress this year. Surely not helping is the company’s inability or unwillingness to rein in the misinformation issues on its platform—a problem that only generates more unflattering news headlines the longer it goes on. Much of the most recent scrutiny revolves around conspiracy theorist Alex Jones’ Infowars website, which retains a page and large presence on Facebook despite making nonfactual claims about the Sandy Hook massacre, the Pizzagate conspiracy theory, and the Parkland, Florida, shooting. Most recently, there was a Jones monologue claiming special counsel Robert Mueller has a history of molesting children. None of this is grounded in reality—but Jones continues to pilot at least two verified pages on Facebook. It’s not hard to imagine how someone reading news about the company would be reticent to start a Facebook account.

Facebook isn’t just Facebook, though. The company also owns Instagram and WhatsApp, and Instagram hasn’t faced the same scrutiny as its parent company. The photo sharing app reported last month that it has reached the 1 billion monthly users mark. Facebook doesn’t break out separate revenue numbers for its other products.

The fall to its stock in after-hours trading Wednesday caused the company’s market capitalization to take a $150 billion hit;  CEO Mark Zuckerberg’s net worth also plummet by nearly $20 billion.

If Facebook manages to make it through this year’s election season without another major scandal and can demonstrate its value to users with new offerings like Facebook Watch, the company may well see upward movement in user growth again. Facebook is certainly investing in more manpower, reporting a 30,275 headcount as of June 30, which is an increase of 47 percent over the same time last year. Some chunk of the new employees are part of Facebook’s cleanup effort, which should be in high gear as the midterm elections approach. All the same, it’s hard to anticipate what kinds of threats may emerge this election cycle. If Facebook can’t convince the public it can handle them, it’ll no doubt be back in a congressional hearing room next year—and weathering yet more uncomfortable earnings calls.