A few months ago I was reading about an AI-powered bot called Aiera which downgraded Facebook’s stock (on behalf of Wells Fargo’s equity arm) but Facebook’s stock continued to rise which led to investors dismissing the bot’s capability.
It did set me wondering though. What if the bot, Aiera was actually right and making a long call (based on longer than conventional time frame)? What if one should actually be selling Facebook’s stocks?
Facebook has not had a good time lately: from accusations of being peddlers of fake news leading to congressional hearings; to major advertisers pulling their marketing spend on Facebook’s platform; to declining numbers of millenials on their platform.
However, the first thing I am keen to explore is Facebook’s purported reach.
Are Facebook’s numbers legit?
The first point of contention for me is Facebook’s claim of over 2.1 billion monthly active users on their platform [Link to Facebook’s media release].
Let us examine this figure in a bit more detail.
The world’s population, according to the UN, is 7.6 billion.
- 26.3 % (according to the CIA Factbook) is under the age of 14. The minimum age for users for Facebook is 13. Therefore, let’s assume that we can exclude this group from Facebook’s reported figures. This means we can exclude 1.999 billion under-14s from the Facebook group.
- The Chinese population of 1.4 billion based in China do not have access to Facebook. 83.5% of the Chinese population are over the age of 14. Therefore, we can exclude another 1.172 billion users from the available Facebook population.
- This leaves an available world population of 4.43 billion who can theoretically use Facebook.
- According to the World Bank, 767 million people live below the poverty line of $1.90 per day. These are our fellow people who do not have enough water, food or funds required to sustain themselves and Facebook is hardly going to be a priority. We can therefore make a broad assumption that they will not be using Facebook.
- This further reduces the available world population to 3.663 billion users.
If we believe this unrealistic figure of 2.13 billion Facebook users to be true, then we are assuming that 58% or over 1 in 2 of every single living person in the world magically logging onto Facebook on a regular basis despite war, famine, illness and no access to Internet or technology.
This does not seem to be a plausible statistic. As long as anyone of you reading this article on average knows at least 1 person who does not actively use Facebook, then it places Facebook’s claims under stress.
Just to set some further context, there are only about 2.1 billion smartphone users in the world and global literacy rate stands at only 83%.
Another way of looking at this is to consider the number of Internet users in the world today – there are about 3.2 billion Internet users in the world (source: https://www.internetworldstats.com/stats.htm), of whom 772 million come from China, leaving about 2.4 billion Internet users. If we believe Facebook, then we are effectively saying, almost 90% of every other user being on Facebook. This is hugely unrealistic
Facebook’s other quandaries.
Leaving aside the challenge of Facebook’s user figures, it has not been a good few months for Facebook.
According to various sources, the number of millenials (those under the age of 25) leaving Facebook is accelerating. Facebook itself has had to admit the mental health risks it poses leaving to more people leaving the platform altogether.
There is also an increasing backlash by advertisers reducing their marketing spend on Facebook. Unilever has threatened to cut its marketing spend on Facebook if it does not tackle extremist content. Proctor and Gamble also has reduced its social media spend by $200 million, including spend on Facebook, to reinvest in other areas with ‘media reach.’ Facebook also significantly overestimated various metrics, including key video viewing time figures, which will over time impact how much advertisers will be prepared to pay for advertising fees.
There is increasing regulatory scrutiny for Facebook, from Congressional hearings about the ‘fake news’ saga which also led to observers criticising Facebook, along with other tech firms, to be out of touch. European regulators are already deeming Facebook’s dominance to be monopolistic with talks of regulatory break-up being whispered in some circles.
There is another more pressing issue for Facebook. For a giant social network, the whole raison d’être is around users being ‘social’ or sharing data. However, Facebook is now facing a syndrome that has been labelled as ‘context collapse,’ or the idea that users on Facebook are sharing less of their lives and content with others. If this continues to peak, it will pose a much more structural problem for Facebook.
Facebook is also facing a backlash against the way it treats its employees. This includes claims of a ‘bro culture’ at Facebook and hypocrisy about their societal welfare they contribute to. Whilst Mark Zuckerberg is a committed philanthropist, vowing to donate 99% of his and his wife’s shares to the Chan Zuckerberg Initiative, stories regarding their cafeteria workers struggling to make ends meet and living in garages do not help their cause. Charity should ideally begin at home.
What does this mean for Facebook?
Everything that has a beginning has an end. This is the order of all things. At some point, perhaps now, perhaps in the next decade, perhaps in the next century, Facebook will disappear. However, the world as we know it will continue.
A very interesting study 4 years ago by a group of Princeton researchers suggested that Facebook will lose 80% of its users by 2017 (or 3 years from the time of research). This, we know now, is not correct. However what makes the study interesting is how the researchers compared to the social network’s growth curve to that of an infectious disease. For those interested in reading the research, you can find it here.
Facebook still remains a hugely successful company by all financial metrics, but they may have peaked. In the short to medium term however, Facebook still has the ability to change things around. Some of them may require fundamental changes to their business model. In a world where their revenues are driven by data and content provided by their users, perhaps rewarding them in an appropriate manner for contributing the data which Facebook monetises may help address the fundamental issue of fairness.
If the world can survive the possible loss of Toys-R-Us, I am sure we will survive the disappearance of Facebook.