Facebook’s birthday surprise

Facebook, the social-media behemoth, turned 15 this week. Its latest quarterly results were unexpectedly good. But what next?


Is Facebook sitting pretty?
(Image credit: 2012 Bloomberg)

Facebook, the social-media behemoth, turned 15 this week. Its latest quarterly results were unexpectedly good. But what next? Matthew Partridge reports.

Exactly 15 years after Mark Zuckerberg launched it, Facebook has unveiled results showing that it is "remarkably resilient", says Bloomberg's Shira Ovide. Sales rose by more than 30% year-on-year in the fourth quarter, while its operating profit margin of 46% is "the envy of the corporate world". Even the number of users in Europe and North America, two of the major areas of concern for shareholders, increased slightly, which was "a surprise". Still, there were also some signs of weakness, including slowing revenue growth and investment spending rising twice as fast as sales.

The impressive result "caps one of the most trying years" in Facebook's history, says Georgia Wells in The Wall Street Journal. Last year, violations of users' trust sparked a furore about how the group handles its users' data "and the influence it wields as gatekeeper of the world's second-largest place to advertise online". Facebook now hopes to increase sales further by targeting advertisements more efficiently, as well as integrating the main website with subsidiaries such as WhatsApp and Instagram.

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How Facebook changed the world

Facebook "has altered America in three notable ways", says The Economist. Not only has it "shaped what it means and feels like to be young", but it has "fostered a virtual me-economy, where people overshare their feelings, photos and comments". Most importantly, it has changed attitudes towards privacy, as "for the first time people felt comfortable sharing intimate details online, including their phone number, relationship status, likes and dislikes, location and more".

Facebook "has a potential for much goodas well as evil", says The Sunday Times.Still, from the beginning "there has been a ruthless, intractable side to the social network", with concerns about political manipulation, invasion of privacy and hate speech. As a result, regulators are starting to get tough, with Germany's Federal Cartel Office moving against Facebook's use of users' data, while France is to embed regulators within Facebook to combat its dissemination of hate speech. Even the social-media giant's own lobbyists agree the question is "no longer about whether social media should be regulated, but how".

Take the uproar with a huge pinch of salt, say Jennifer Saba and Robert Cyan on Breakingviews. Even the fuss about "fake news" and "commercialisation of consumer data" have "done little" to stop either Facebook or Google, which also reported "soaring sales" recently, from dominating online advertising. The odds of a competitor emerging to challenge them are also pretty "far-fetched", given the round of job cuts at Vice Media, BuzzFeed and Verizon Media. Even the prospect of effective "outside regulation" curbing their "domination of search and social media" seems remote. Both will "rule the next wave of internet things to come".

Sony shares stumble on PlayStation woes

Sony shares have just had their worst fall since 2015, says Bloomberg's Yuji Nakamura. They slid by more than 8% early this week on news of weaker profits in the PlayStation business in the fourth quarter of 2018, a result of a fall in the sales of the company's flagship PlayStation 4 console.

The declining sales of the "ageing" console is particularly important given problems in Sony's other businesses, including its "struggling" smartphone division.This increases pressureon Sony to launch the PlayStation 5 successfully in the near future.

Sony's problems are too deep to be solved by a newer console, says Lex in the Financial Times. This is because the fall in PlayStation sales reflects the fact that "faster mobile data means gaming is switching to smartphones". The question for investors "is not whether the games console industry is declining, but how fast". This means investors sticking with Sony "may have made a category error" by leaving money in a firm with "unhealthy" prospects.

Not so fast, says Jacky Wong in The Wall Street Journal. Console sales may be falling but the PlayStation user base has become a "cash cow",with revenue from the firm's network segment, including digital game downloads and monthly subscription services, growing 44% from a year ago. This type of revenue "will likely prove more resilient than sales of... consoles... as users continue to buy new games". Value investors will also likethe fact that Sony now tradesat just 11 times forward earnings "close to its trough valuation".

City talk

Swiss private bankers are supposed to maintain their composure "even if the world is collapsing around them", says Lex in the Financial Times. But those working for Julius Baer "must be perspiring lightly under their finely tailored suits". The shares have slid by 40% in a year, and last year profits "missed expectations". Baer's large number of Asian clients means the bank "is more exposed than rivals if newly created billionaires have less money to stash" as the result of a Chinese slowdown. Management's insistence that "the growth story remains intact" rings hollow.

HMV, which went into administration just before the end of last year, "survives to live another day", saysAJ Bell's Russ Mould. Its purchase by Canadian group Sunrise Records will ensure that "the iconic British brand stays on the high street".But HMV may still be "on borrowed time", especially since it "is essentially relying upon the current revival in vinyl sales to keep it alive". The physical entertainment sales market is in decline; HMV may have vanished in ten years' time.

The European Commission has blocked a proposed merger between Alstom and Siemens on competition grounds. Good call, says Bloomberg's David Fickling. The tie-up would have established a railways group "more than three times as big as its nearest rival in both rolling stock and signalling". Both firms have accused the Commission of allowing "ideological prejudices" to prevent them creating a "European champion" to fight Chinese firms. But "its hard to feel much sympathy": ten years ago they chose to sign away some of their core technology to state-owned rolling-stock manufacturer China CNR Corp".

Dr Matthew Partridge

Matthew graduated from the University of Durham in 2004; he then gained an MSc, followed by a PhD at the London School of Economics.

He has previously written for a wide range of publications, including the Guardian and the Economist, and also helped to run a newsletter on terrorism. He has spent time at Lehman Brothers, Citigroup and the consultancy Lombard Street Research.

Matthew is the author of Superinvestors: Lessons from the greatest investors in history, published by Harriman House, which has been translated into several languages. His second book, Investing Explained: The Accessible Guide to Building an Investment Portfolio, is published by Kogan Page.

As senior writer, he writes the shares and politics & economics pages, as well as weekly Blowing It and Great Frauds in History columns He also writes a fortnightly reviews page and trading tips, as well as regular cover stories and multi-page investment focus features.

Follow Matthew on Twitter: @DrMatthewPartri