Social-media giant Facebook has shrugged off “fake news” and claims of voter manipulation. But slowing growth is a different story, says Alice Gråhns.
“The citizens of the world may appreciate the humbling of Facebook,” says Lex in the Financial Times. Its shareholders won’t. Last week the social network announced a solid second quarter: user numbers were up 11% and revenues 42% year-on-year. Yet the share price plunged by almost a fifth, wiping nearly $120bn off Facebook’s stockmarket value (roughly equivalent to the entire market capitalisation of fast-food giant McDonald’s).
One problem is that while 42% sounds good, it was the slowest growth rate since 2015, and down seven percentage points from 49% year-on-year growth in the first quarter. It was also the first time in three years that Facebook has fallen short of analysts’ average revenue estimates (they had pencilled in 43%). More importantly, the decline is set to continue during 2018, meaning that growth could slow to below 30% by next year. And even more worryingly, the number of daily users has clearly flatlined in the US and Canada (its most profitable users), while it lost one million users in Europe due to the new GDPR data regulations.
A near-constant crisis
The results were an “utter disaster for investors”, says Shira Ovide on Bloomberg. If Facebook’s forecasts are correct, the “internet’s best combination of fast revenue growth and plump profit margins is dead”. Some would argue that it’s a marvel it has taken so long. For the last couple of years Facebook has been in “near-constant crises” over election interference, slack oversight of users’ information, fake news and even incitements to violence. This has only been exacerbated by “its failures to explain how and why it does what it does”.
But wait a minute, says Robert Cyran on Breakingviews: “Facebook’s new guidance isn’t that bad.” So what if the growth rate slows below 30%? That’s still roughly the same as Google’s parent Alphabet. And while operating margins are expected to fall to around 35% within the next few years, this is still about ten percentage points higher than its big internet rival. Given that, it’s no surprise that 85% of brokers still have a “buy” rating on Facebook’s shares, says Dan Gallagher in The Wall Street Journal. Most point out that Facebook is still a profit machine growing at a rate unmatched by its peers. And others hope that the firm’s forecast on margins is too conservative, “perhaps in part to placate regulators who have been scrutinising Facebook’s business model”. In all, it’s too early to tell if the results are “a blip or the beginning of a sustained downturn”, or even a backlash. But what is clear from the market reaction is that “tech companies priced for growth tend to pay dearly when that growth slows”.
Foxtons does well despite struggling sales
“Londoners love to hate Foxtons, the upmarket real-estate agent frequently associated with gentrification, and its yuppyish staff,” says Chris Bryant on Bloomberg. Its high fees of 3% on each house sale “haven’t helped its image, either”. When sales volumes and prices were rising, those fees meant that London-centric Foxtons made plenty of cash for investors. Not any more. In the first half Foxtons burned through £6m and reported a £2.5m loss, compared with a £3.8m profit last year.
London house prices have clearly peaked, notes Matthew Vincent in the Financial Times. Last year they fell for the first time since 2009, according to building society Nationwide, and this week property adviser LCP reported that prime central London prices were down 8% year-on-year. Greater London prices were little better than flat, and sales were down 8%.
Yet even after reporting a 23% fall in property sales revenue, scrapping its interim dividend and describing the outlook as “mixed”, Foxtons’ share price jumped by 7%. “Signs of a second-quarter recovery in lettings revenue and the pipeline of sales ‘under offer’ showed how much better off” the agency is relative to its peers, says Vincent.
The company also has almost £12m in cash, and the lettings business – at 60% of revenues – is a solid “counterweight to those struggling sales”, says Katherine Griffiths in The Times. And as for the long run, while its image may be a bit 1980s, Foxtons is still holding off its online rivals. “Many sellers and buyers still want their hands to be held by agents on the ground. However unlovable they are.”
City talk
► European gambling giant GVC has set its sights on the US sports-betting industry, says Alex Brummer in the Daily Mail. News of a £75m joint venture with casino giant MGM Resorts, which aims to combine MGM’s brands with GVC technology, sent GVC’s shares surging by 5.4%. But there are risks. GVC is placing its intellectual property at risk. As US firms develop their own technology, “UK upstarts could soon find themselves at the back of the queue”.
► Twitter co-founder Jack Dorsey (pictured) wants to improve “the health of the public conversation” on the social-media platform. “His shareholders may not be so enthusiastic,” says Lex in the Financial Times. Last week Twitter reported that monthly users fell from 336 million to 335 million during the second quarter, sending the share price plunging by more than 20%. The firm’s scale has disappointed those who expected it to be the next Facebook. However, it has as least now found ways to appeal to advertisers.
Its preferred measure of adjusted profit margin hit 37%. If it gets into the 40s, it would match Facebook.
► David Fischel, boss of Intu, is leaving, and “you can’t blame him”, says Nils Pratley in The Guardian. His £3.4bn deal to sell the shopping-centre group to Hammerson, fell apart when the putative buyer’s shareholders said no. Intu’s shares slid 8% last week, as it said its properties are now worth 6% less than they were six months ago. But this is also embarrassing for Hammerson’s chairman, David Tyler, and CEO, David Atkins. Six months ago they bid 254p for Intu – last week’s share price was 165p. Atkins is trying to fix the damage with a strategic revamp, but “the post-Intu credibility deficit in Hammerson’s boardroom remains”.