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Facebook eyes a future beyond social media – The Economist

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3 years ago

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FACEBOOK HAS always had two faces. One is the grimace of a company that many people, in particular politicians, love to hate. President Joe Biden recently accused the social-media giant of “killing people” by spreading misinformation about vaccines against covid-19. (He later rowed back a bit after Facebook pointed out it does quite a lot to stop the spread of such content and to promote legitimate vaccine tips.)

The other face is a happy one of a firm that users, advertisers and investors cannot live without. Analysts predict it will be grinning again on July 28th, when it presents second-quarter results. Revenues are expected to rise by nearly 60%, year on year, to around $28bn—despite Apple’s update in April to its iPhone operating system that allows users easily to opt out of being tracked around the web by apps like Facebook. That would put it on track to exceed $100bn in sales this financial year. Quarterly net profit could come in just shy of $10bn, double that of a year ago. No wonder Facebook looks poised to become a long-term member of the exclusive club of companies with a market value above $1trn, which it joined earlier this year (see chart).

How can a firm with such political baggage be so successful? The answer is two sides of the same coin. With more than 2.7bn daily global users, Facebook’s main offerings—its flagship social network (known internally as Blue), photo-sharing on Instagram and messaging on WhatsApp and Messenger—are a digital magnifying glass of human nature. This glass amplifies the good (neighbourly help amid the pandemic) as well as the bad (conspiracy theories and quack cures). It also serves as a remarkable lens for advertisers to focus in on the world’s consumers. And the two-facedness is likely to become more pronounced should Facebook succeed with its biggest project yet: creating a “metaverse” that would combine a 3D digital world with the 3D physical one.

At its core Facebook is a giant advertising machine. Adverts generate 98% of its revenue. Blue remains a dominant ad platform internationally, raking in perhaps $55bn last year, according to estimates by KeyBanc Capital Markets (Facebook does not break out revenues by service). Instagram, which Facebook bought in 2012 for what seemed like a colossal $1bn, now chips in another $20bn or more, taking its share of overall ad revenues to nearly 30%, up from just over 10% in 2017.

Debra Aho Williamson of eMarketer, a data provider, praises Facebook’s ability to target ads as “incredibly precise”. Advertisers value this highly: Facebook earns more than $9 a year for every one of its users, about twice as much as Twitter does. The firm observes what its users do not only on its own services, but almost everywhere else online. This lets it pick what products to flog to a given user, identify others with similar interests and find out whether they bought something after seeing the ad.

Even before the pandemic hit, this was hard to resist, especially for smaller firms with fewer resources to run sophisticated marketing operations, which make up the bulk of Facebook’s 10m advertisers, but also for most big global brands. Even Chinese sellers are spending hundreds of millions of dollars on Facebook, says Brian Wieser of GroupM, which places ads on behalf of brands. Although Facebook’s apps are banned in China, Chinese merchants can plug their wares to Western consumers thanks to firms such as Wish, an American online marketplace that helps arrange ads, payment and shipping.

No commercial brakes
Covid-19 has turbocharged Facebook’s machine. Confined to home, the average American user spent nearly 35 minutes per day on Blue and Instagram in 2020, according to eMarketer, two minutes more than the year before. That adds up to thousands of additional years of collective attention. While some firms went belly-up or cut advertising spending amid last year’s recession, others were created: 6.6m in America alone since the start of the pandemic. Many want a slice of that extra attention. These days it is unimaginable to run an online consumer business without targeted ads, notes Mark Shmulik of Bernstein, a broker, just as it was once unthinkable to run a business without a bricks-and-mortar shop. A bigger share of such firms’ budgets will be spent on Facebook and its fellow ad-tech giant Google, says Mr Shmulik. Some admen are calling it “the new rent”.

Facebook has added more than 2m renters since the start of the pandemic. It is almost certain to add more of them as economies reopen and digital ads, which already make up 60% of overall ad spending in America, keep chipping away at TV and other traditional media. The impact of Apple’s new tracking opt-out, which four in five iPhone users have already embraced, according to Flurry, a data firm, will not be clear until the next round of quarterly results in October, observes Mark Mahaney of Evercore ISI, an investment bank. But even if this makes Facebook’s targeting a bit less effective, it will still be at least as good as its competitors’, he predicts. And although on July 23rd American trustbusters got another three weeks to refile a lawsuit against Facebook, which had been thrown out last month for lack of evidence, they will struggle to prove that the company is a social-networking monopolist under current competition law. For all the anti-tech bluster in Washington, DC, this is unlikely to change as long as Congress remains polarised.

The bigger threat to Facebook’s continued success, which has long preoccupied Mark Zuckerberg, its co-founder and chief executive, is that virtual masses finally tire of its apps and move elsewhere, pulling advertisers with them. Over the past two years a new generation of social media has emerged that could do just that. Although Facebook’s share of American digital advertising has continued to grow in recent years, its global social-media advertising has been edging down since 2016. The challengers range from specialists such as Clubhouse and Discord, two audio-chat services, to Snapchat and TikTok, which take on Blue and especially Instagram more directly. TikTok fans in America now spend more than 21 hours a month on the video app, compared with less than 18 hours that users spend on Blue, according to App Annie, a market-research firm.

In the past, Facebook might have snapped up smaller rivals, as it did with Instagram. With trustbusters looking over its shoulder, it is instead placing a number of big bets. The first is on the “creator economy”, which lets people make money from digital works such as videos or newsletters. This is an extension of its ad business, but one where it has fallen behind new rivals. TikTok and YouTube, in particular, have been better at attracting creators who keep users glued to their smartphone screens. In April Facebook announced that it was developing new audio features, including Clubhouse-like chat rooms in which listeners can tip performers. In June it launched Bulletin, a newsletter-hosting service that is similar to Substack, which popularised the genre. The following month Mr Zuckerberg vowed to shower creators on Blue and Instagram with $1bn by the end of next year (without specifying what form these payments would take).

Facebook’s second wager looks beyond advertising to e-commerce. It already hosts 1.2m online shops on Blue and Instagram. That puts it in the same league as Shopify, a fast-growing rival to Amazon, which has 1.7m. A month ago Facebook launched a new way to lets buyers try on clothes virtually. It also plans to link its “Shops” offering with Marketplace, its existing peer-to-peer trading service, and WhatsApp, which Facebook wants to turn into a vehicle for chat-based “conversational commerce”, the latest trend in online shopping. Later this year it would like to phase in a version of Diem, its controversial cryptocurrency (formerly known as Libra), that would beef up its payments infrastructure.

For now Facebook has waived seller fees but they could add a few billion dollars to its turnover as soon as next year. Besides bringing in non-advertising revenues, an e-commerce business would also help the company with its tracking problem. If shoppers spend more time and leave more data on its platform the inability to follow them across the rest of the web becomes less important. Mr Shmulik expects the e-commerce landscape to fragment into such walled gardens, each combing shopping and advertising, and operated by a tech giant.

Meta-morphosis
Mr Zuckerberg’s grandest gamble concerns the metaverse. When he spent $2bn in 2014 to buy Oculus, a maker of virtual-reality (VR) gear, many thought he was buying himself a toy. But in recent years Facebook has made further VR-related acquisitions, most recently BigBox VR, the developer of “Population: One”, a shooter game similar to “Fortnite”. This gives Facebook control of a hardware platform for VR and its sibling, “augmented reality” (AR), which serves users digital information as they survey the real world through smart spectacles and the like.

And as with e-commerce, part of Facebook’s rationale could be to create strategic sovereignty, by lessening its dependence on the whims of hardware-makers such as Apple. The potential prize is large. Sales of Oculus headsets contributed around $1bn to Facebook’s revenues last year. If the technology keeps improving, VR and AR are the obvious next phase of video-gaming, which has grown into an industry with global revenues of $180bn.

Mr Zuckerberg’s ambitions do not stop there, however. He doesn’t see the metaverse, which now has its own division within the firm, merely as a place to enjoy games or other immersive entertainment. Instead, he envisages it as a virtual space where people live and work, in keeping with a dream that geeks have harboured since 1992, when the term metaverse was coined by Neal Stephenson, a science-fiction author. In five years’ time, Mr Zuckerberg has said, he would like Facebook no longer to be seen primarily as a social-media company but as a metaverse company.

That would make Facebook cool again. It would no doubt also invite more scrutiny from critics worried about the firm’s power. Should users look on course to spend 35 hours a week immersed in its virtual world, rather than 35 minutes a day, this could invite regulation that actually bites. For now, the metaverse is encouraging something Mr Zuckerberg fears more: competition. Others sizing up the field include video-game firms like Roblox and Epic Games, as well as tech giants Apple, which is reportedly planning its own AR glasses, and Microsoft, which already sells AR goggles. If Facebook beats them to metaverse supremacy, it will have plenty to grin about. Otherwise, expect serious grimacing.

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Trump could cash out his DJT stock within weeks. Here’s what happens if he sells

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3 weeks ago

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August 23, 2024

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Former President Donald Trump is on the brink of a significant financial decision that could have far-reaching implications for both his personal wealth and the future of his fledgling social media company, Trump Media & Technology Group (TMTG). As the lockup period on his shares in TMTG, which owns Truth Social, nears its end, Trump could soon be free to sell his substantial stake in the company. However, the potential payday, which makes up a large portion of his net worth, comes with considerable risks for Trump and his supporters.

Trump’s stake in TMTG comprises nearly 59% of the company, amounting to 114,750,000 shares. As of now, this holding is valued at approximately $2.6 billion. These shares are currently under a lockup agreement, a common feature of initial public offerings (IPOs), designed to prevent company insiders from immediately selling their shares and potentially destabilizing the stock. The lockup, which began after TMTG’s merger with a special purpose acquisition company (SPAC), is set to expire on September 25, though it could end earlier if certain conditions are met.

Should Trump decide to sell his shares after the lockup expires, the market could respond in unpredictable ways. The sale of a substantial number of shares by a major stakeholder like Trump could flood the market, potentially driving down the stock price. Daniel Bradley, a finance professor at the University of South Florida, suggests that the market might react negatively to such a large sale, particularly if there aren’t enough buyers to absorb the supply. This could lead to a sharp decline in the stock’s value, impacting both Trump’s personal wealth and the company’s market standing.

Moreover, Trump’s involvement in Truth Social has been a key driver of investor interest. The platform, marketed as a free speech alternative to mainstream social media, has attracted a loyal user base largely due to Trump’s presence. If Trump were to sell his stake, it might signal a lack of confidence in the company, potentially shaking investor confidence and further depressing the stock price.

Trump’s decision is also influenced by his ongoing legal battles, which have already cost him over $100 million in legal fees. Selling his shares could provide a significant financial boost, helping him cover these mounting expenses. However, this move could also have political ramifications, especially as he continues his bid for the Republican nomination in the 2024 presidential race.

Trump Media’s success is closely tied to Trump’s political fortunes. The company’s stock has shown volatility in response to developments in the presidential race, with Trump’s chances of winning having a direct impact on the stock’s value. If Trump sells his stake, it could be interpreted as a lack of confidence in his own political future, potentially undermining both his campaign and the company’s prospects.

Truth Social, the flagship product of TMTG, has faced challenges in generating traffic and advertising revenue, especially compared to established social media giants like X (formerly Twitter) and Facebook. Despite this, the company’s valuation has remained high, fueled by investor speculation on Trump’s political future. If Trump remains in the race and manages to secure the presidency, the value of his shares could increase. Conversely, any missteps on the campaign trail could have the opposite effect, further destabilizing the stock.

As the lockup period comes to an end, Trump faces a critical decision that could shape the future of both his personal finances and Truth Social. Whether he chooses to hold onto his shares or cash out, the outcome will likely have significant consequences for the company, its investors, and Trump’s political aspirations.

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Arizona man accused of social media threats to Trump is arrested

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August 23, 2024

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Cochise County, AZ — Law enforcement officials in Arizona have apprehended Ronald Lee Syvrud, a 66-year-old resident of Cochise County, after a manhunt was launched following alleged death threats he made against former President Donald Trump. The threats reportedly surfaced in social media posts over the past two weeks, as Trump visited the US-Mexico border in Cochise County on Thursday.

Syvrud, who hails from Benson, Arizona, located about 50 miles southeast of Tucson, was captured by the Cochise County Sheriff’s Office on Thursday afternoon. The Sheriff’s Office confirmed his arrest, stating, “This subject has been taken into custody without incident.”

In addition to the alleged threats against Trump, Syvrud is wanted for multiple offences, including failure to register as a sex offender. He also faces several warrants in both Wisconsin and Arizona, including charges for driving under the influence and a felony hit-and-run.

The timing of the arrest coincided with Trump’s visit to Cochise County, where he toured the US-Mexico border. During his visit, Trump addressed the ongoing border issues and criticized his political rival, Democratic presidential nominee Kamala Harris, for what he described as lax immigration policies. When asked by reporters about the ongoing manhunt for Syvrud, Trump responded, “No, I have not heard that, but I am not that surprised and the reason is because I want to do things that are very bad for the bad guys.”

This incident marks the latest in a series of threats against political figures during the current election cycle. Just earlier this month, a 66-year-old Virginia man was arrested on suspicion of making death threats against Vice President Kamala Harris and other public officials.

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Trump Media & Technology Group Faces Declining Stock Amid Financial Struggles and Increased Competition

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August 20, 2024

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Trump Media & Technology Group’s stock has taken a significant hit, dropping more than 11% this week following a disappointing earnings report and the return of former U.S. President Donald Trump to the rival social media platform X, formerly known as Twitter. This decline is part of a broader downward trend for the parent company of Truth Social, with the stock plummeting nearly 43% since mid-July. Despite the sharp decline, some investors remain unfazed, expressing continued optimism for the company’s financial future or standing by their investment as a show of political support for Trump.

One such investor, Todd Schlanger, an interior designer from West Palm Beach, explained his commitment to the stock, stating, “I’m a Republican, so I supported him. When I found out about the stock, I got involved because I support the company and believe in free speech.” Schlanger, who owns around 1,000 shares, is a regular user of Truth Social and is excited about the company’s future, particularly its plans to expand its streaming services. He believes Truth Social has the potential to be as strong as Facebook or X, despite the stock’s recent struggles.

However, Truth Social’s stock performance is deeply tied to Trump’s political influence and the company’s ability to generate sustainable revenue, which has proven challenging. An earnings report released last Friday showed the company lost over $16 million in the three-month period ending in June. Revenue dropped by 30%, down to approximately $836,000 compared to $1.2 million during the same period last year.

In response to the earnings report, Truth Social CEO Devin Nunes emphasized the company’s strong cash position, highlighting $344 million in cash reserves and no debt. He also reiterated the company’s commitment to free speech, stating, “From the beginning, it was our intention to make Truth Social an impenetrable beachhead of free speech, and by taking extraordinary steps to minimize our reliance on Big Tech, that is exactly what we are doing.”

Despite these assurances, investors reacted negatively to the quarterly report, leading to a steep drop in stock price. The situation was further complicated by Trump’s return to X, where he posted for the first time in a year. Trump’s exclusivity agreement with Trump Media & Technology Group mandates that he posts personal content first on Truth Social. However, he is allowed to make politically related posts on other social media platforms, which he did earlier this week, potentially drawing users away from Truth Social.

For investors like Teri Lynn Roberson, who purchased shares near the company’s peak after it went public in March, the decline in stock value has been disheartening. However, Roberson remains unbothered by the poor performance, saying her investment was more about supporting Trump than making money. “I’m way at a loss, but I am OK with that. I am just watching it for fun,” Roberson said, adding that she sees Trump’s return to X as a positive move that could expand his reach beyond Truth Social’s “echo chamber.”

The stock’s performance holds significant financial implications for Trump himself, as he owns a 65% stake in Trump Media & Technology Group. According to Fortune, this stake represents a substantial portion of his net worth, which could be vulnerable if the company continues to struggle financially.

Analysts have described Truth Social as a “meme stock,” similar to companies like GameStop and AMC that saw their stock prices driven by ideological investments rather than business fundamentals. Tyler Richey, an analyst at Sevens Report Research, noted that the stock has ebbed and flowed based on sentiment toward Trump. He pointed out that the recent decline coincided with the rise of U.S. Vice President Kamala Harris as the Democratic presidential nominee, which may have dampened perceptions of Trump’s 2024 election prospects.

Jay Ritter, a finance professor at the University of Florida, offered a grim long-term outlook for Truth Social, suggesting that the stock would likely remain volatile, but with an overall downward trend. “What’s lacking for the true believer in the company story is, ‘OK, where is the business strategy that will be generating revenue?'” Ritter said, highlighting the company’s struggle to produce a sustainable business model.

Still, for some investors, like Michael Rogers, a masonry company owner in North Carolina, their support for Trump Media & Technology Group is unwavering. Rogers, who owns over 10,000 shares, said he invested in the company both as a show of support for Trump and because of his belief in the company’s financial future. Despite concerns about the company’s revenue challenges, Rogers expressed confidence in the business, stating, “I’m in it for the long haul.”

Not all investors are as confident. Mitchell Standley, who made a significant return on his investment earlier this year by capitalizing on the hype surrounding Trump Media’s planned merger with Digital World Acquisition Corporation, has since moved on. “It was basically just a pump and dump,” Standley told ABC News. “I knew that once they merged, all of his supporters were going to dump a bunch of money into it and buy it up.” Now, Standley is staying away from the company, citing the lack of business fundamentals as the reason for his exit.

Truth Social’s future remains uncertain as it continues to struggle with financial losses and faces stiff competition from established social media platforms. While its user base and investor sentiment are bolstered by Trump’s political following, the company’s long-term viability will depend on its ability to create a sustainable revenue stream and maintain relevance in a crowded digital landscape.

As the company seeks to stabilize, the question remains whether its appeal to Trump’s supporters can translate into financial success or whether it will remain a volatile stock driven more by ideology than business fundamentals.

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