Facebook (NASDAQ: FB) has had a challenging year so far in 2020. Earlier, the social media giant had been hit with an advertising boycott from various companies, a big blow to Facebook since almost all of its revenues come from ads. However, things are set to get worse for the company as a number of potential regulatory cases are picking up steam. Specifically, the Federal Trade Commission (FTC) is supposedly gearing up to launch an antitrust lawsuit against Facebook.
The FTC has spent over a year investigating Facebook and whether the company used its established position in the market to stifle out potential competition. At the same time, Facebook still needs to make its own case to the commission in its defense, something that could possibly change the FTC’s opinion.
Facebook’s CEO Mark Zuckerberg had already been questioned by the FTC back in August. In many ways, this is a big deal, as Zuckerberg hadn’t been questioned in the FTC’s prior probe of Facebook’s business dealings back in 2019. That particular case resulted in a $5 billion settlement as the agency found the social media giant guilty. This current case has the potential to be much more serious if the FTC feels its necessary to interrogate Zuckerberg this time round.
While it’s not yet confirmed whether or not the FTC will choose to sue Facebook, it’s a possibility that looks quite likely at the moment. The main focus has been Facebook’s past acquisitions of potential competitors. Among other things, the FTC has the power to potentially ‘undo’ any past mergers that the commission finds anti-competitive. That’s in addition to the billions in dollars in potential fines they can levy against the company if the case proves successful.
Many other large social media and tech companies are facing regulatory scrutiny as well. Google and Apple are both facing their own antitrust inquiries at the moment. Regardless, most of these companies have done very well for themselves so far this year.
Shares are down slightly in after-hours trading, around just 1.5%. Despite everything that’s been going on, from ad boycotts to regulatory issues, Facebook has managed to do reasonably well for itself. Since January, the stock is up around 30%, not as high as other companies like Amazon but still a respectable performance, nonetheless. Most Wall Street analysts remain quite optimistic about Facebook, with only a handful being neutral or outright negative on the company’s future prospects.
Facebook Company Profile
Facebook is the world’s largest online social network, with more than 2 billion monthly active users. Users engage with each other in different ways, exchanging messages and sharing news events, photos, and videos. On the video side, the firm is in the process of building a library of premium content and monetizing it via ads or subscription revenue. Facebook refers to this as Facebook Watch. The firm’s ecosystem consists mainly of the Facebook app, Instagram, Messenger, WhatsApp, and many features surrounding these products. Users can access Facebook on mobile devices and desktop. Advertising revenue represents more than 90% of the firm’s total revenue, with 50% coming from the U.S. and Canada, and 25% from Europe. With gross margins above 80%, Facebook operates at a 40%-plus margin. – Warrior Trading News