Is Facebook Dying?

Facebook has not seen a worthwhile income for some time, and now their stock is down more than 8% according to Business Insider. The company has already told investors that they must brace for a revenue growth rate slowdown, but that investors could expect aggressive opportunities next year.

 

While the earnings report for Facebook blew away the numbers, investors were not excited. Shares are down and continue to go down. Despite the fact that Facebook has seen a revenue growth of 56% over the past year, their operating margins were reported at 45%.

 

The reason for the decline, per Fortune, is that Facebook has been warning investors that their costs will increase and that the company may not maintain their great revenue cycle much longer. The warnings have grown more severe in the fourth quarter as well.

 

Facebook Hits Limit on Advertisements

Right now, a big concern for Facebook is their limited space for advertisements that they can place on user newsfeeds. While this was announced by Facebook last quarter, it is something they continue to warn people about, especially investors. They stated that their advertisement limit would cut into Facebook’s revenue growth rate and the company feels that ads will play less of a role in their growth overall.

 

Facebook Spending to Increase

The biggest news from Facebook is that their spending will accelerate in the upcoming year. They stated that they would spend aggressively in 2017 while they revamp their hiring process. Also, technical recruiting jobs will require them to offer better and more attractive packages to attract the top talent.

 

They also have a few projects underway, says Business Insider. These projects, which include a data center, are going to require funding as of 2017. Therefore, the company plans to have significant expenses.

 

In 2015, Facebook had warned their shareholders about their increase in spending, and they did increase it for the year as promised.

 

Some feel that Facebook is establishing a tick-tock pattern, which the odd years marked for their spending increases, and the even years are for revenue growth and cooling off. If that pattern holds true, investors can expect a cooling off period in 2018, with expenses increases again for 2019.

 

What is Revenue?

Revenue is a company’s income. Revenue recognition occurs during a given period, including any discounted products or returned items. To calculate revenue, a company will multiply the price of goods or services based on the number sold.

 

Deferred revenue occurs when a company reports revenue that has not yet actually been earned. For example, the money was reported as a liability for the enterprise, and the amount unearned is deferred on the financial statements.

 

Marginal revenue, on the other hand, is based on the theory of microeconomics. It is the additional revenue that is earned by increasing sales of a single unit. It also is referred to as “unit revenue.”

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