Facebook flags ‘significant uncertainty’ for its business in 2021

28 Jan 2021

Image: © prima91/Stock.adobe.com

The social media giant clocked higher revenues again but warned that regulatory scrutiny and a shaky ad market are a cause for concern.

Facebook earnings rose again in 2020 but the company has warned that 2021 will be a challenging year with regulators turning up the heat and an unsteady advertising market.

Its revenues for the year were $85.9bn, up 22pc from 2019, with profits rising to $29.1bn. Despite the spike in revenues, the company’s stock was down after the results were announced.

While Facebook said its advertising business benefited during the pandemic from increasing demand for e-commerce and digital services, it warned that this may soon wane.

“We continue to face significant uncertainty as we manage through a number of cross currents in 2021,” the company stated in its latest quarterly earnings report.

“[We] expect year-over-year growth rates in total revenue to remain stable or modestly accelerate sequentially in the first and second quarters of 2021,” it said. “In the second half of the year, we will lap periods of increasingly strong growth, which will significantly pressure year-over-year growth rates.”

Facebook warned about the impact of changes to Apple’s iOS 14 that it expects will have an effect at some point this quarter on how Facebook targets ads.

It also flagged that increasing regulatory scrutiny and the uncertain state of transatlantic data transfers following the Schrems II ruling will continue to present uncertainties. The July ruling invalidated the Privacy Shield framework for transferring data between Europe and the US.

Its suspension leaves a question mark for many tech companies and the form their operations in Europe will take. Facebook said it is monitoring “the potential impact on our European operations as these developments progress”.

Facebook and other tech giants face a growing tide of regulatory action in both the US and Europe over their dominant market positions and how they handle illegal and objectionable content on their platforms.

The forthcoming Digital Services Act and Digital Markets Act in the EU will, if passed, clamp much tighter controls on the operations of Facebook, while in the US it is facing two antitrust lawsuits that are dissecting the company’s M&A strategy, accusing it of squashing competition. The company is facing ever-growing calls from some lawmakers to be broken up.

Facebook now has 2.8bn monthly active users and 1.84bn daily active users, both up from the year prior, but in Q4 of 2020 it saw a decline in users in the US and Canada by about 1m. This is the second consecutive quarter where user numbers have dropped in the US and Canada.

Jonathan Keane is a freelance business and technology journalist based in Dublin