After disclosing lukewarm earning forecasts, user slowdown and privacy concerns, Facebook created history of the wrong kind by losing $119Bn of market value in one day.
To put things into perspective, the drop of Facebook’s market value is more than the market cap of IBM, McDonalds and Nike each. The company, part of the famed FANG tech group, has had a troubled year.
Facebook was at the centre of the media firestorm after the Cambridge Analytica scandal, for being a platform abused by political meddlers to influence elections.
Zuckerberg then went through a (comical?) testimony, that generated more memes than actual change. The data breach through Analytica accelerated the rollout of GDPR, intending to put data back in the hands of users.
Cambridge Analytica subsequently collapsed, but nothing was as dramatic as the stock price fall chart this week.
Valuation is always about growth, especially for future-dominating tech companies. Facebook’s annualized earnings are close to $20Bn, and the erstwhile $600Bn valuation implies a 30x multiple.
With valuation being a combination of earnings and future growth, Facebook delivered a double whammy. On the growth side monthly user growth halved to 1.5%, users were lost in Europe and revenue growth slowed.
On the earnings side, Facebook forecast that operating margins would fall from 50% to 30%. Investors, seeing both earnings and growth drastically reduced, hammered the stock.
The fall may be unreasonable, but it is definitely a business result of what has occurred over the year. The warnings from Facebook are that it is changing structurally, and it had setup investor expectations in an unrealistic manner.
All this implies that Facebook is going to be pressured to look inward, as well as try to monetize its products such as Whatsapp and Instagram.
Facebook was supposed to be a network we could trust, and now it is fighting to prove it is trustworthy. This pressure is going to ensure that it will focus on fixing, rather than building.
That opens up a big opportunity in markets that are not domestic because Facebook will have to briefly take its eye off new opportunities. In India, Whatsapp is already in the eye of the storm over lynchings, with Facebook yet to reach all the 350MM Indian smartphone users.
New trusted networks, new use cases and India focused products are well positioned to fill in this whitespace. Bear in mind that Facebook and Whatsapp are aggregators of users who generate content, and it is with a content lens that we should view these networks.
While WeChat and Tencent have grown fenced from competition behind Chinese Walls, their success indicates that social products are local first, then global.
Changing the language of a product to vernacular languages is not enough, the look and feel have to be domestic. Indian built social products will have an Indian UI/UX, which will not alienate a number of people who are intimidated by a “foreign” look and feel.
In his excellent blog post, Sajeth Pai talks about avoiding the English tax to build for the next billion. There are already startups stepping in. ShareChat is a “no-English” social network that has more than 8 million active users and allows users to just share content to chat.
The company has raised more than $20MM, and looks and feels very different from Silicon Valley social content networks.
It is not only the sharing of text content that is a use case.
Just this week, a voice-based knowledge sharing startup Vokal raised $5MM. While Vokal might just be very similar to Quora, it is taking a strongly Indian approach (audio-visual) to solving a need. Pratilipi allows you to read and write stories in your vernacular language, and has raised $5MM.
All this makes sense, 125 MM of India primarily speaks English while the rest 900MM speaks Hindi, Telugu, Tamil and a smattering of other languages. Many of these vernacular speakers are on the internet, and many more are going to come online with falling data prices.
With giants such as Facebook concentrating internally, startups in India could serve for a myriad of social content use cases. The startups have to be clever in attracting and acquiring vernacular speakers, and once they reach a critical mass – they will grow like wildfire.
Facebook’s fall could provide an opportunity for vernacular content startups to rise.
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