Facebook shares fell as much as 3% after the news before paring losses to close down 1.9%.
Google racked up another record fine in the European Union, this time a 100 million-euro ($121 million) penalty from France’s privacy watchdog over the way it manages cookies on its search engine.
CNIL, France’s data protection authority, also slapped online shopping giant Amazon.com Inc. with a 35 million-euro fine for placing cookies, which are tracking devices, on people’s computers without their consent, according to a statement on Thursday.
The companies were given a three-month ultimatum to make changes to the information they provide to users, or face additional daily fines of 100,000 euros.
The Google penalty is double CNIL’s previous highest fine, also for the Alphabet Inc. unit. The company has also faced intense scrutiny from the European Commission, having been fined more than 8.2 billion euros in three antitrust cases.
The U.S. Federal Trade Commission took a major step toward the possible breakup of Facebook Inc. by formally filing an antitrust lawsuit against the technology giant, accusing it of abusing its monopoly powers in social networking to stifle competition.
The FTC and a coalition of states also suing the company zeroed in on Facebook’s acquisition of photo-sharing app Instagram for $715 million in 2012, and the $22 billion deal for messaging service WhatsApp two years later. The deals, which sailed past regulators when they were proposed, were meant to “squelch” competitive threats, the commission wrote in its complaint Wednesday. Now, the FTC wants Facebook to divest the two businesses -- an idea that poses an existential threat to the empire built by Chief Executive Officer Mark Zuckerberg.
Because much of the company’s revenue growth is already coming from Instagram, and WhatsApp is central to Facebook’s bet on digital commerce, losing the two platforms would threaten to erase much of Facebook’s long-term value. The company’s shares, which have soared more than 35% in 2020, fell as much as 4% Wednesday, ending the trading day down about 2%.
“Breakups are scary for investors because in some ways they could disrupt the business models,” said Dan Ives, an analyst at Wedbush Securities who called Instagram one of the three best business acquisitions of the past 15 years. Still, Ives thinks the chance of an actual breakup is “slim” without legislative changes from Congress, which he believes are unlikely. “It’s a noisy headline but it doesn’t massively change the situation for Facebook in the near term.”
However remote the prospects, any sign that the FTC is leaning toward a breakup is likely to weigh further on Facebook’s stock.
Facebook acquired these promising rival platforms precisely because it expected the main social network to one day fade, and it wanted to be the company deciding what apps people would turn to next. A breakup would undo most of Zuckerberg’s hedging for Facebook’s future, just as his immense investments in Instagram and WhatsApp are starting to pay off. Facebook argues that those investments made Instagram and WhatsApp what they are today.
“Our acquisitions of Instagram and WhatsApp have dramatically improved those services and helped them reach many more people,” Zuckerberg wrote in a post to employees on Wednesday. “We compete hard and we compete fairly. I’m proud of that.”
Here’s how a forced breakup would impact Facebook’s prospects.
Facebook is running out of slots to place advertisements on its flagship social network -- too many ads in the feed diminish a user’s experience. So it’s leaning hard on the revenue potential of shopping. This year, the company has built ways to shop directly through images and videos in Instagram, and has rallied businesses around the world to use WhatsApp to communicate with customers. Facebook has worked to weave in those commercial aspirations with its main social network by requiring businesses to have Facebook pages in order to run Instagram ads, for instance. The Menlo Park, California-based company is also planning to eventually link WhatsApp’s chatting with Instagram’s shopping. But without those two properties that businesses depend on, Facebook’s path to becoming an e-commerce giant looks a lot harder.
Facebook’s user numbers have started to level out in some of its most valuable markets, and the company has been warning for years that the main News Feed’s ad space is reaching saturation. That means the company’s recent revenue growth has been primarily driven by Instagram. The photo- and video-sharing app generated some $20 billion in revenue in 2019, Bloomberg has reported, which would equal about 29% of all of Facebook ad sales last year. Research firm EMarketer estimates Instagram’s 2020 sales will be $28.1 billion, or about 37% of Facebook’s total ad revenue. That would mean Instagram’s $8.1 billion annual sales gain would account for the vast majority of Facebook’s ad revenue growth, according to EMarketer.
WhatsApp, meanwhile, makes virtually no money for Facebook. But that’s soon expected to change as the company makes a big bet on payments, commerce and customer service tools for the messaging app’s 2 billion-plus users. Any revenue WhatsApp brings in will boost Facebook’s growth even further.
Both WhatsApp and Instagram are crucial to Facebook’s international strategy, offering the company a strong toehold in fast-growing markets like India and Brazil. In some countries, WhatsApp or Instagram far outpace their parent company by users. In India, for example, WhatsApp has over 100 million more users than Facebook does, according to EMarketer. That’s important to Facebook, which views India as the next great internet frontier, and th