In July this year, Facebook suffered its worst day on the NASDAQ stock exchange, tumbling 19% in a single day. The financial loss – US$119 billion – which made it the biggest one-day drop in the history of the United States stock market.
Analysts quickly pointed to the critical metrics used to measure the success and failure of social media companies: Daily Active Users (DAU) and Monthly Active Users (MAU). These measures, now coveted by Wall Street, are used by technology businesses of all sizes in concert with other measures to analyse trends. An outsider could logically assume that both DAU and MAU would have to be significantly down for Facebook stock to take such an unthinkable hiding, but that assumption would be wrong.
In fact, almost every measure – including advertising revenue and overall revenue – were up. The issue was that Facebook missed analyst projections. Facebook hit US$13.04 billion compared to estimates of $13.16 billion, and European specific DAU fell from 282 million to 279 million. Importantly, this drop was directly related to the effect of the General Data Protection Regulation (GDPR) in the European Union.
Facebook, at this point, is one of the first companies in the history of mankind to be directly impacted by the population of Earth. Around 7.5 billion humans inhabit the planet, and approximately 3.2 billion of those have some form of internet access, although this figure is somewhat inflated because ‘access’ does not necessarily mean having the internet. Facebook has 2.23 billion monthly active users and 1.17 billion daily active users. Taking into account the number of people who will never use Facebook due to age, philosophy or income levels, along with the number of people without meaningful internet access (beyond a basic connection), it could be said that Facebook is nearing complete market saturation. Of course, Facebook is currently blocked to hundreds of millions of users behind the Great Firewall of China. Penetration of the platform in the rest of the middle class developed world appears near full capacity. However, the social network is still measured using the traditional measures of predicted growth based on historic performance and actual growth. It should also be noted that Facebook reported a profit of more than US$5 billion for the quarter.
How should a behemoth such as Facebook be measured? At the drop in July, many market analysts were quick to point to issues related to privacy as being partially responsible for the hit in share price. Whether user privacy, enabling Russia’s interference in the elections or slow reaction to platform hate speech, CEO Mark Zuckerberg and COO Sheryl Sandberg have faced rolling public scandals through most of 2018. While the stock analysts’ privacy explanations for the sharp valuation crash may be misguided, the justifications may point toward an answer. In 2018, do investors and users expect companies which build huge social networks and achieve global scale to demonstrate measurable commitment to social responsibility? Indeed, one of Google’s ten core values is succinctly stated, “You can make money without doing evil.” How can socially responsible technology be measured in a manner satisfactory to Wall Street analysts, shareholders and the general public?
Perhaps a list of requirements could be put in place, including jobs created (Facebook is hiring more than 10,000 new employees to improve privacy protection), service to the community and investment in infrastructure that benefits everyone. Senior executives could take additional personal responsibility to deliver on visible metrics for positive impact to user communities.
Regardless of the final result, Wall Street – and indeed global financial analysts – need to rethink how digital media businesses are measured. Social media businesses depend on soft social factors, not just hard numbers of users, clicks and sales. What is popular today can become rapidly unfashionable tomorrow, and Facebook’s famous blue thumb could pivot up or downwards depending on the likability of the platform itself.
This story is featured in the 23 November 2018 edition of The Warren Centre’s Prototype newsletter. Sign up for the Prototype here.