I became the original Facebook bull on Wall Street after I published the first Wall Street style research report on Facebook on Tumblr in March of 2010. My revenue forecast was simply my estimate of Facebook’s % of total internet time spent on the site multiplied by an estimate of the total global internet advertising market. My 2014 revenue estimate of $12.3 billion was off the actual 2014 revenue of Facebook by 1%. It turns out that Facebook is simply monetizing people’s attention.
I remained a Facebook bull for almost eight years, as the company continued to increase user engagement (defined as DAU/MAU once the company became public and started reporting results). I’ve long believed that sites are either growing engagement, or they’re dying, and for eight years, Facebook was growing user engagement.
But when the company reported Q4 ’17 earnings on January 31st, 2018, for the first time in it’s history, Facebook’s user engagement declined, and I turned bearish, penning this blog post to note the occasion.
On April 25th, Facebook reported it’s Q1 ’18 earnings, and Wall Street applauded the results, sending the shares up almost 10%, adding more than $45 billion in market cap, as Facebook’s quarterly revenue surged 49%, year-over-year, to $12 billion. While I saw impending doom in Facebook’s results, Wall Street was cheered, because Wall Street, even after all these years, still doesn’t understand Facebook. Wall Street has never understood Facebook, because Wall Street doesn’t understand two fundamental things.
The One Chart Wall Street Should Focus On
On it’s earnings call, Facebook presented slides that included 20 different graphs. But in my opinion, the most important graph is below, which shows the year-over-year change in user engagement, which is defined by Facebook as Daily Active Users/Monthly Active Users (DAU/MAU). It is not a pretty picture:

In other words, the average Facebook user is spending less time on Facebook. Given that Facebook’s main model is to monetize user time, less time per user is ultimately disastrous
The Second Thing Wall Street Doesn’t Understand About Facebook
As I wrote in my January 31st post “revenue growth is a lagging indicator of engagement growth”. In other words, advertisers are increasing their advertiser spend to catch up to the years of incredible growth in users and user engagement. So Wall Street is cheered by the revenue growth, not realizing it’s the result of user growth and user engagement growth from year’s past.
It will be a number of quarters before Faceboook’s revenue mirrors the decline of Facebook’s user engagement. But the user engagement increase that powered Facebook’s stratospheric rise in valuation has come to an end. Facebook’s user engagement decline is now accelerating. Investors beware.

By Lou Kerner

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Face off: Investors beware

Roger McNamee, a prominent tech investor and onetime mentor to Mark Zuckerberg, has little faith that Facebook will fix itself. “They think it’s over,” he said at an event organized by Quartz in Washington, DC on April 26. The company is self-assured after Mark Zuckerberg’s good-enough performance in Congress, he said. “They are really confident. They didn’t need the earnings report,” he added, referring to Facebook’s stellar results for the first quarter of 2018, which the company posted on Wednesday. Signs of the Cambridge Analytica scandal were nowhere to be seen in Facebook’s financial results, which beat Wall Street expectations. As an early investor in Facebook, McNamee’s described his involvement with the company as the “crowning achievement of his long career.” He’s since grown so disillusioned with the platform, and disappointed in Zuckerberg and Sheryl Sandberg, that he called the past 12 months “the most depressing of his life.” “Every part of this has made me sadder and sadder and sadder. I feel like my baby has turned out to be something horrible, and these people I trusted and helped along have forgotten where they came from,” he said in a conversation with Kevin Delaney, Quartz’s editor-in-chief. McNamee has become an outspoken critic of the company, comparing its role in the 2016 US election to “the plot of a sci-fi novel” while at the same time admitting that he has “profited enormously” by backing Facebook early on. The organization he helped found, the Center for Humane Technology, has made it a mission to expose Facebook’s multiple flaws, and to try to fix them. It’s likely that Facebook is “going to get away with” the bad things it’s done, McNamee said. This is particularly dangerous because of the upcoming 2018 midterm elections in the US. “They’ve done bupkis to protect us,” he added. His stark realization, he said, was that Facebook’s detrimental effects on society—social media addiction, the spread of misinformation—are not incidental, but a matter of “design and goal.” He shares this view with several other prominent voices once associated with Facebook. He believes the company’s goal is only to get bigger and bigger. “They are totally focused on growth, nothing else matters,” he said. It’s been “move fast, break things, apologize, repeat, from day one.” It’s not just about the money, McNamee said, comparing his former protégé to a cult leader. “Zuckerberg believes he’s given the world a massive gift,” he said, and the mentality at the company remains focused on becoming “the most important thing in the world.”

Source: By Hanna Kozlowska

It's time to ditch Facebook and start over

It's doom and gloom for Facebook

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