After a Year of Privacy Scandals, Facebook is Back to Business as Usual

For the past 12 months, Facebook has been under nearly constant fire from privacy advocates, investors, regulators and even advertisers. In 2018, the #DeleteFacebook movement gained momentum, Facebook’s stock tanked more than 25 percent, and Facebook CEO Mark Zuckerberg appeared in front of Congress, forced to testify about all of his company’s less-than-savory privacy scandals. And, yet, despite all this bad news, it looks like Facebook is back to business as usual in 2019, buoyed by better than expected numbers in its most recent 4Q 2018 earnings report.

Facebook’s strong financial performance

Prior to the release of the 4Q 2018 earnings report, the growing consensus amongst investors was that Facebook was losing its momentum badly. News that Facebook shared personal data without user consent seemed to come out daily. After months of privacy scandals (including the Cambridge Analytica scandal), it looked like Facebook was facing an insurmountable uphill climb from here on out. As a result, investors were abandoning the company in droves, with Facebook’s stock ending the year lower than the prior year for only the first time since 2012. In the last six months of the year, Facebook’s stock fell off a cliff, losing 40 percent of its value.

So you can imagine just how surprised investors were when Facebook not only reversed its decline in the final quarter of the year, but actually outperformed expectations. No matter how you measured it – by sheer number of users, by advertising revenue, or by total engagement – Facebook seemed to knock it out of the park, despite all the privacy scandals.

For example, revenue in 4Q 2018 increased by 30 percent on a year-over-year basis, far outpacing revenue growth guidance figures of 24 to 28 percent. Those who counted Facebook out and assumed that its advertising model was no longer valid might be dismayed to learn that Facebook posted revenue of $16.9 billion. Moreover, earnings per share (EPS) increased by 65 percent on a year-over-year basis, giving further proof that Facebook was firing on all cylinders.

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Despite privacy scandals, user growth and engagement is increasing

Where the numbers really get interesting is when you start to examine the Monthly Active User (MAU) counts, which is one of the key barometers of how a social media company is performing. Given all of Facebook’s privacy scandals, the natural inclination would be to assume that Facebook users were abandoning the platform in waves, especially in the U.S and Europe, where the company has run afoul of the new European General Data Protection Regulation (GDPR).

But that’s hardly the case – MAUs actually increased by 9 percent on a year-over-year basis, to a new all-time high of 2.32 billion people. Moreover, the Daily Active User (DAU) counts also increased by 9 percent over that same time period, to a total of 1.52 billion. As a result, it’s no longer possible to make the argument that Facebook’s user base is losing any of its engagement with the platform.

Even from an advertising perspective, Facebook posted surprisingly robust performance. Total ad impressions – a key metric to determine how many people are actually clicking on Facebook ads – were up 34 percent on a year-over-year basis. That, too, would seem to buck the conventional wisdom. In 2018, the consensus was that advertisers were tired of all the privacy scandals swirling around Facebook, and were looking elsewhere to spend their advertising dollars.

However, when you add in Facebook’s total reach across all of its platforms – including Instagram, WhatsApp, and Messenger – the numbers are even more impressive. In 4Q 2018, there were 2.7 billion people using at least one of these platforms every month, compared to 2.6 billion people in the prior quarter. Moreover, there were at least 2 billion people using at least one of these platforms on a daily basis. Thus, even if a user actually abandoned the main Facebook social network, they were still in Facebook’s orbit, due to Facebook’s ownership of Instagram and Messenger.

Do consumers really care about privacy?

When you take all of the above into account, it’s only natural to ask: Do consumers really care about privacy? After all, despite nearly monthly privacy scandals erupting at Facebook, and seemingly endless controversy swirling around the company (and top executives like Sheryl Sandberg), users don’t seem to be going anywhere. Even in the U.S., where Facebook has faced the greatest amount of user backlash, user numbers and user engagement is growing. And that means that advertisers will stick around, too. After all, can they really afford to ignore a total market size of more than 2 billion people?

For privacy advocates, of course, Facebook’s ability to put privacy scandals in the rear view mirror has to be a bit troubling. It increasingly appears to be the case that, even if consumers say they care about privacy, they really don’t. In other words, “privacy” as a concept has value to them, but if it means paying a monthly subscription cost to Facebook or giving up any of their current utility while using the platform, they’re willing to overlook all the nasty little issues raised during Facebook’s privacy scandals. Even European users agree, despite the buzz around GDPR. They might be concerned about data transfer and what is meant by the term “by signing up you agree,” but they are not abandoning Facebook either.

In March 2018, it looked like the scandal surrounding the firm Cambridge Analytica, which shared the Facebook data of millions of users for political consulting purposes, might finally be the final straw. Suddenly, consumers could see a direct link between fake news, personal data sharing and election results. Scandalous items showing up in news feeds contributed to the success of the Trump campaign, said Facebook detractors. And regulators now had evidence that Facebook was in potential violation of its earlier consent decree with the U.S. Federal Trade Commission.

Implications for the tech industry

In fact, things were sliding so far out of Facebook’s favor that some tech analysts and commentators initially suggested that privacy might be a new form of competitive differentiation in the marketplace. If a company is able to provide superior privacy protection, the thinking went, then consumers might be tempted to abandon one platform in favor of another.

And, indeed, that seems to be the case with search engines (with consumers searching out new search tools that keep them anonymous) and web browsers. But not so much the case with social networks, where the “lock-in” effect is much stronger. In short, it’s relatively low risk and low cost to dump Google as your search engine, but it’s a lot more painful to dump your Facebook account, as long as all of your friends are still using it.

Apple, for example, has sought to get out ahead of the privacy debate, positioning itself as a champion for user privacy. It has even gone so far as to take on Facebook and Google directly, chiding them for their privacy scandals and all the data collected on users. But if users don’t really care about privacy, how viable is Apple’s strategy really going to be, if it threatens to alienate two of Silicon Valley’s biggest giants?

Facebook delivered better than expected numbers in its 4Q 2018 earnings report. Since consumers didn't care about #privacy, neither do advertisers. Click to Tweet

Going forward, everyone – business rivals, investors, consumers, regulators and privacy advocates – will be keeping a close eye on Facebook. Will Mark Zuckerberg really move forward with comprehensive reform of the social network to make it safer for personal data and information? If he fails to follow through on his promises yet again, it might finally lead to the type of public outcry that results in strict regulatory oversight of the social media company in the near future.

 


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