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Is Facebook’s (FB) dominance in social media coming to an end?

The stock traded lower in the early hours of Thursday's session as the market turned cautious after the FTC lawsuit

Facebook, Inc. (NASDAQ: FB) this week suffered probably the worst setback since its inception more than 15 years ago, as regulators in the U.S filed an antitrust lawsuit against the social networking platform citing misuse of cyberspace to undermine competition. Adding to the company’s woes, media reports revealed that Facebook and its photo-sharing arm Instagram went down in several parts of the world on Thursday.

If the Federal Trade Commission moves ahead with its proposal, Facebook would have to undergo a breakup and let go of Instagram and messaging app WhatsApp. The agency is joined by a group of states in suing the company. According to them, the acquisition of Instagram about a decade ago, and the purchase of WhatsApp for $19 billion more recently strengthened the company’s monopoly in the sector.

Room for Hope

However, to the management’s relief, the proposal might require Congress’ approval and the existing legislation needs to be amended before going ahead. According to some experts, the chances of a breakup are remote. Since the possibility of Facebook being asked to divest its subsidiaries cannot be ruled out as of now, investors would be concerned about the future of the company. The stock dropped nearly 2% early Thursday, reversing most of the recent gains.

Facebook’s CEO Zuckerberg has been betting high on WhatsApp for the role it can possibly play in Facebook’s e-commerce initiatives. If WhatsApp and Instagram become independent entities, the company will be forced to revisit its growth strategy, which is centered around the two apps. Of late, the cry for breaking up Facebook has been getting louder, with the company’s critics raising alarm over its monopolistic business model.

Facebook Q3 2020 earnings

Under Scanner

Facebook’s business practices have been under the lens of regulators for a long time, especially after the 2016 presidential election when the company allegedly influenced voters by promoting fake news. The latest development can be viewed as the continuation of a series of regulatory scrutiny that happened since then. It is worth noting that the growth of major internet companies in the past few years was so fast that their business practices mostly went unchecked.

Read management/analysts’ comments on Facebook’s Q3 earnings

Continued growth in advertising revenues pushed up Facebook’s revenues to about $21 billion in the fourth quarter, which translated into a 28% growth in profit to $2.71 per share. The growth was broad-based as the company expanded its user base further during the period. The numbers also came in above the market’s prediction, as they did in the previous two quarters.

Stock Dips

At $273.79, Facebook’s shares were trading lower early Thursday, after closing the previous session lower. With the threat of the company losing its key business units looming, the stock will remain under investors’ scanner in the coming days.

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