Facebook shares plunge amid first decline in European daily active users

Facebook sought to blame GDPR as it revealed its daily active users in Europe declined for the first time in nine years and it disappointed investors with lower-than-expected growth.

Facebook shares plunge amid first decline in European daily active users

The blue-branded social network had been on an unbroken streak of quarter-on-quarter growth in European daily active users since at least Q4 2009, the earliest point in time its financial reporting goes back to.

That ended in Q2 2018, when the number dropped by 3 million users from 282 million in Q1 2018. The figure for Europe includes UK users, and is for Facebook only, not the company’s other offerings Instagram, WhatsApp and Oculus.

On its earnings call last night Facebook’s chief financial officer David Wehner pointed out that the company had warned last quarter that the GDPR rollout might lead to a fall in active users, though he did not mention the UK backlash against Facebook’s involvement in the Cambridge Analytica affair. He said the company was not providing guidance on European user numbers for the next quarter.

Despite the reversal, European advertising revenue (which includes all Facebook-owned properties) for Q2 still climbed by 47% to a new quarterly high of $3.3bn (£2.5bn)

However, investors were spooked by the company's warnings of "high single-digit" decline in revenue growth and it falling short of analyst expectations for overall user growth and more than $120bn was drained from the company's market value. 

While the numbers fell only just short of market estimates, the report led to Facebook’s share price decreasing 20% in after-hours trading. Despite a very difficult year for the company, plagued with negative issues such as the Cambridge Analytica scandal and fake news distribution, analysts were still surprised at Facebook’s failure to grow advertising revenue in line with expectations.

(Source: Facebook)

Facebook reported US$13.04 billion in ad revenue for the quarter, which is a 42% year-on-year increase and clearly still a healthy figure, but was below market projections. Of that, the company’s strength in mobile advertising was clearly displayed, with Facebook saying mobile ads accounted for 91% of ad revenue, up from 87% in Q2 2017.

In Asia-Pacific, Facebook ad revenue grew to US$2.3bn in Q2 2018, a $739m increase from Q2 2017. 

However, Wehner commented on the earnings call that the company expects "revenue growth rates to continue to decelerate in the second half" by "high single digit[s]". Yet in spite of Facebook’s brand reputation taking a heavy battering in the last few months, earnings per share actually rose from $1.69 in Q1 to $1.74 in Q2.

Also worrying for investors was Facebook’s slowdown in acquiring new active users outside Europe. Both daily and monthly active users grew 11%, which is Facebook’s slowest growth to date and fell below analysts’ predictions. However, a significant portion of user growth came from Asia-Pacific, in particular India and the Philippines.


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