Facebook's User Growth Hits A Sticking Point

Facebook, Inc. FB shared plummeted 18 percent Thursday following the company’s second-quarter earnings print. Results were mixed, with EPS beating and sales missing consensus estimates.

Facebook’s key metrics though, daily and monthly active users, were a disappointment. Both grew by 11 percent over the quarter—but in the wrong places.

As the chart below shows, DAUs stalled in North America and fell slightly in Europe. Management offered up Europe’s new data privacy reason why the region’s number wasn’t higher.

If total users are still growing at a strong rate, why are the North America and Europe results weighing so heavily on the stock?

Those two regions are significantly more monetized than the rest of the world. The companies advertising are bigger and the users themselves tend to be wealthier, leading to more competition for clicks and higher margins for Facebook. In short, all the company’s growth came from where it’s not making as much money.

Effects from the new GDPR rules will likely continue to reveal themselves over the next quarter, and analysts have cut back their estimates accordingly. That said, there are few other platforms can command an audience of a similar scale and with the ability to narrowly target customer segments — explaining why advertisers have not abandoned Facebook in the wake of its scandals.

The company is investing heavily in the "stories" feature across its family of apps, and has indicated that it will be the next big growth opportunity as the monetization of news feeds matures.

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