The 2016 election is coming back to haunt Facebook’s profits

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• Judy Woodruff:

  But first, for months, experts have been asking whether the collection of problems confronting Facebook would take a bite out of its gargantuan profits.

  Today, Facebook took its biggest financial hit to date, as its stock plummeted. And, because of its size, that led to the largest single-day drop ever for a company on the stock market.

  Jeffrey Brown looks at what's behind the drop and the bigger questions Facebook is facing beyond this one-day plunge.

• Jeffrey Brown:

  The company's stock dropped by about 19 percent today, wiping out, for now anyway, nearly $120 billion in value. The reaction from investors followed a quarterly report late yesterday, and it came despite the fact Facebook announced an increase in revenue of more than $13 billion last quarter.

  In a call with investors yesterday, CEO and founder Mark Zuckerberg announced profits won't be as high going forward because the company is making moves to shore up privacy and filter out misinformation and hate speech.

  Here's how he put it.

• Mark Zuckerberg:

  Looking ahead, we will continue to invest heavily in security and privacy because we have a responsibility to keep people safe. But, as I have said on past calls, we're investing so much in security that it will significantly impact our profitability. We're starting to see that this quarter.

• Jeffrey Brown:

  For the record, we should say the "NewsHour" works with Facebook on some projects.

  And we take a deeper look at the company now with Casey Newton, senior editor at The Verge. He joins me from San Francisco.

  So, Casey, in general terms first, is this a case of the bottom line finally catching up with some recent bad publicity?

• Casey Newton:

  Well, I do think that's true in at least two ways.

  One is, the company is adding new users at a much slower rate than it has in many, many years. And, two, it had to hire 20,000 new people to moderate the platform after a few of those rounds of bad press. And that's starting to eat into their profitability.

• Jeffrey Brown:

  OK, so let's parse some of that.

  So the first issue is just whether this phenomenal growth of the company, just in terms of users, will continue or can continue.

• Casey Newton:

  That's right.

  There are only so many people on the planet. I have seen estimates that there are about three billion people who have the Internet access necessary to use Facebook. And depending on how you count, Facebook says it has 2.2 billion monthly users. So Facebook is starting to hit kind of the ceiling on the total number of people that they might ever reach.

  But as a result of some of these scandals that have unfolded over the past couple of years, I do think they're increasingly having trouble finding new users, particularly in places like North America, where they have remained flat at 185 million people for the past two quarters.

• Jeffrey Brown:

  But this is — you're talking about how many people on the planet. This is the kind of stratospheric numbers we're talking about for a company like Facebook.

• Casey Newton:

  It's true. There's never been a company quite like it.

• Jeffrey Brown:

  So, now let's go to some of these other issues, like the content issues, because one of the — the big controversies recently have been over how information is used, right, the privacy issue, and what content will appear on Facebook.

• Casey Newton:

  Yes, that's right.

  I would sort of trace Facebook's big problems back to the 2016 election, where, in the aftermath, we saw there had been a lot of Russian interference on the platform. And that unearthed a lot of things that we have sort of been able to explore over the past couple of years.

  One of them has been, you have state-level actors trying to interfere with what you see on Facebook. There's also been hate speech on the platform that, in many cases, authorities have linked to real world violence that's happened in countries around the world.

  And then, more recently, there's been a lot of concern in America, in particular, about the spread of misinformation on the platform with sites like Infowars or with Holocaust deniers that have sort of made Facebook a less safe and friendly place to be.

  And so what Facebook said about a year ago was, it's going to hire a bunch of people to help moderate that. And while they have actually hired the majority of those people now, it has started to eat into their profitability.

• Jeffrey Brown:

  I mean, even just last week, Mark Zuckerberg in an interview going to one of these issues, right, he seemed to tie himself in knots over the question of whether Holocaust deniers would be allowed on Facebook.

  So, outsiders still looking inside, thinking that they still don't quite know even how to how to deal with these things.

• Casey Newton:

  Yes, well, Facebook sort of says two things simultaneously.

  One is, it wants to actively fight against the spread of misinformation. It wants to get rid of fake news. It wants you to be able to trust what you see when you visit Facebook.

  And on the other hand, it says, we're going to provide a home for people almost no matter what they say. Unless they violate this pretty short list of rules, we're going to let you say whatever you want. We're not going to try to evaluate whether what you said is true or false.

  And those two ideas seem to be in tension, and they have caused Facebook a lot of problems over the past few weeks.

• Jeffrey Brown:

  And in terms of impact on revenues, particularly ad revenues, the economic model for Facebook, the real question is, how much of all of this has a lasting impact, I guess.

• Casey Newton:

  It's true.

  And one thing we should say is, that for all the problems that Facebook had, its revenue still did increase by 42 percent last quarter…

• Jeffrey Brown:

  Right. Right.

• Casey Newton:

  … which most companies would kill for, right?

  So, I don't want to give the impression that Facebook is in mortal danger here. But, up until yesterday, people were writing headlines that literally said, is Facebook invincible?

  And I think what we saw with the numbers that Facebook released yesterday is that, no, it's not. It is subject to the laws of gravity.

• Jeffrey Brown:

  And just in our last 30 seconds, Casey, wider implications for the tech sector in something like this, or is this seen as very Facebook-specific?

• Casey Newton:

  Well, here's where I would say it has a broader impact.

  There are other big tech platforms that face very similar issues. Google is the biggest one with YouTube, which faces very similar issues. Also, Twitter faces very similar issues. Similarly, people want to kind of exploit these platforms, do wrong on them. Nobody has a great answers for the stuff. We're all kind of figuring it out together in real time.

• Jeffrey Brown:

  Casey Newton of The Verge, thank you very much.

• Casey Newton:

  It's my pleasure.