On Wednesday, July 25th, in a conference call with investors, Facebook acknowledged that it had failed to meet expectations for the second quarter. This didn’t sound like a huge miss. The social network pioneer had an earnings per share of $1.74 for Q2 2018, up from $1.32 for the same quarter in 2017. Analysts had expected year-to-year revenue growth to be $13.3 billion. It was in fact just $13.2 billion. What’s a tenth of a billion among friends?
Also on the call, and somewhat more portentously, company CFO Dave Wehner said: “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.”
That may still have seemed an unlikely catalyst for such a precipitous fall. Indeed, some analysts think the numbers spell out “by most measures … a great quarter.” But the immediate market reaction was … what it was. Facebook’s closing price (NASDAQ: FB) on the day of the call was $217.50. The following day, July 26, it closed at just $176.26, having just lost 19% of its value. This was a loss in total market capitalization of $119 billion, the steepest one-day value loss for any listed company in Wall Street’s history.
I once had a college professor instruct his class to write an in-class essay about the causes of the first world war. He warned, “An automatic F for anyone who even mentions the Archduke!” We were supposed to write about underlying causes. We were supposed to describe the dry powder in the key, not the lit match that was the assassination of Archduke Ferdinand by Gavrilo Princip.
In the same spirit, we must say: the conference call didn’t bring the powder. It only threw a match in its direction. The powder has been drying out for years, as Facebook has weathered a long list of politically freighted scandals: Russian disinformation, Alex Jones, Myanmar, Cambridge Analytica.
What may have been the worst of it was the growing sense that Facebook’s plans for addressing its problems are misconceived: it has learned the wrong lessons and accordingly may be moving in precisely the wrong direction. The head of Facebook’s Civic Engagement office recently said: “Using machine learning we’ve gotten more effective at blocking, or quickly removing fake accounts. And that’s important since they’re often the root of a lot of bad activity that we see on our platform.” He thus expressed the attitude of many at FB — that better machines, better algorithms, are the solution. Skeptics believe that the right move would involve something more … human.
From the Left
A week before the crash, Sean Illing was arguing in Vox that “fake news” is an antitrust problem: that is, the nature of the harm that monopolies do has changed in the digital world. They are no longer gouging consumers by price as old line monopolies delighted in doing. But they still do society harm as a consequence of their market dominating status, spreading falsehoods is an example of that harm, and some trust-busting may be required.
“If there were more competition,” Illing explains, “purveyors of fake news would have to figure out how to game more algorithms.”
In one respect Facebook is in an enviable situation. The attacks on its quasi-editorial decisions come from both left and right, and it is often accused of being too permissive and too restrictive of the same message. It can do what ‘moderates’ since ancient times have done — it can contend that the corresponding criticisms of the two sides cancel each other out.
On the other hand, Facebook is sometimes criticized for reasons that don’t break down neatly along left/right lines at all, nor permissive-versus-restrictive lines either, yet nonetheless sound political. For example, FB has come under fire for nothing less than “eroding the core foundations of how people behave by and between each other.”
Some on the left have contended (a) that they have been out-organized by the right on Facebook, but have added (b) that this isn’t Facebook’s fault, that their fellow leftists ought to get busy on organizing within Facebook, and other social media, for their own causes. This for example is Sara Fischer’s position at Axios. She makes the point for example that the Women’s Marches that “made national headlines all over the country” in January 2017 were organized via Facebook.
Similarly, Hannah Ballantyne, writing about what she calls “meme culture,” of which Facebook is a corporate embodiment, says optimistically that it allows the creators of memes to “seize the means of production” for themselves, a classically Marxist goal.
Further (to return to the remarkably severe one-day loss of market cap) leftists on social media regard this one-stock crash as proof of the inherent volatility of capitalism and the way in which Trump’s tax cuts have created bubbles, all in danger of popping as (on this reader) this one just has.
In that spirit, Bob Kendall tweeted out the question, “could Facebook roll the market over? If the buy the dippers don’t show up beware! There are lots of bogus companies out there!”
From the Right
The conservative blog RedState has said that Facebook, like Twitter, is “going to continue to face political difficulties until they decide to get out of the content management business.” It even raises the prospect that if those social media continue to manage their content, in ways that RedState regards as left-leaning, then Congress “or a regulatory agency” ought to start treating these media as public utilities.
Governor Mike Huckabee, the press secretary’s father, tweeted that Facebook founder Mark Zuckerberg might as well “change name to FAKEBOOK to more accurately reflect how it operates with bias toward conservatives.”
One commenter, applauding Huckabee’s tweet, said, “politically biased censorship is a VERY BIG DEAL.”
Many on the right look to market solutions to political problems. They see Facebook’s leftward bias as a political problem, and they see its stock crash as part of the solution. A “MAGA” twitter denizen calling himself MTJ Renegade urges “Facebook Investors to tell Zuckerberg to #ZUCKOff.”
One inevitable development in the contemporary US following a sharp stock price drop is a lawsuit. And, as if on script, a shareholder named James Kacouris has accused Facebook, Zuckerberg and David Wehner of making misleading statements to hide slowing revenue growth and operating margins.
There is also a meme circulating that shows Mark Zuckerberg looking unhappy, with the caption, “When Censoring Conservatives Cost You $16.8 Billion.”
But Jim Geraghty, senior political correspondent of The National Review, doesn’t seem to think that Facebook’s stock market troubles are a consequence of spurning conservatives at all. It is, he says, “mostly a matter of mixed earning and a sense that Facebook’s growth has plateaued.” Still, it is, he adds, “probably not merely coincidence that the crash comes at a time when the company has no friends on the political spectrum.”
Geraghty also provides a wonderfully concise (one sentence) statement of Facebook’s rise and fall: It “built something amazing and far-reaching but didn’t really figure out how to manage it.”
We’ll give the final word (a philosophical one) to a writer for First Things, a periodical expressing the worldview of conservative Catholics. K.E. Colombini finds it remarkable that all one’s new and old friends are “somewhere on social media, easily findable and searchable on the internet cloud.” He asks whether this is a good thing and answers, “Perhaps, but only to an extent….there is something to be said for limiting our circle of friends to those who really deserve this important title.”