ACC 4320 Assignment Week 5
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Feb 20, 2024
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5.1 Interpreting Risk Disclosures. Obtain the latest Form 10-K for Facebook, Inc. (www.investor.fb.com). Locate and describe the significant risks the company identifies. Are any of these unexpected based on your previous familiarity with the company? Following are the top three risks faced by Facebook that affect its financial condition, forecasts, cash flows, and its operational results:
Firstly, Facebook could be significantly affected if it cannot retain current users, attract
new users, or maintain active users' engagement. For example, this can happen if Facebook
doesn't add new functions, items, or offerings that consumers can use or if users encounter
difficulties when installing, updating, or otherwise using the products on mobile devices
(Facebook, 2021). So, it will depend more and more on its capacity to sustain or boost user
engagement levels and monetization to spur revenue growth if its active user growth rate keeps
falling. According to Meta's quarterly financial report, Facebook lost 1⁄2 a million daily users
globally in the 4th quarter of 2021 against the previous period (Ghaffray, 2022). Thus, it seems
that this risk is not a surprise because the new features and capacities introduced by Facebook are
not quite innovative for young users like reels are just a replica of TikTok. Also, the previous
user base is aging, and there aren't many countries left in the world where Facebook can expand
for growth purposes.
Secondly, the majority of Facebook's income comes from advertising (Facebook, 2021).
The business may significantly suffer if marketers left or cut back on their spending. If Facebook
doesn't deliver ads in an effective manner, or if marketers do not believe that their spending will
create a competitive benefit, then Marketers will stop working or cut the budgets they are willing
to commit to the Facebook advertisement. In fact, CNN reports that Sonos, Commerzbank, and
Mozilla have decided to stop doing business with Facebook and that several companies are
reevaluating their connection with the social media platform (Burch, Sean, 2018). Similarly, the
2020 boycott movement suddenly hit its reputation as well. Companies were urged to boycott
and protest Facebook's handling of hate speech and disinformation (Hsu & Lutz, 2020). This risk
was unexpected, especially during COVID-19, when social media platforms had a lot of
potentials since people were using digital resources for almost everything. Still, Facebook took
all the necessary precautions to improve its information and privacy code, and it has gained back
the trust of some marketers. However, such a sudden risk can arise any time again if the evolving
world's values aren't considered. Lastly, Facebook's success is continuously threatened by competition. Facebook is in
competition with businesses that sell advertising as well as businesses that offer social, media,
and information goods and services intended to engage users on the web, on mobile devices, and
online overall. For example, Tencent, Apple, Google, YouTube, and Amazon are Facebook's
rivals in messaging, video advertising, and social media. Some possible rivals may have more
resources or hold stronger competitive positions in some product categories, geographical areas,
or user demographics than Facebook. In fact, Facebook relies on the stability of some of its
competitors, including Apple, Samsung, and others (Facebook, 2021). It seems that such
elements might make it possible for rivals to react more effectively to developing technology and
modifications in the market. This risk from the competition is not unexpected because many
users nowadays, particularly younger people, are aware of and are actively using other goods and
services that compete with Facebook products like TikTok or others. In conclusion, this paper went through the significant risks faced by Facebook, including user
retention plus active engagement, advertisement income, and competition. References
Ghaffray,
S.
(2022).
Facebook
is
Shrinking.
Retrieved
from
https://www.vox.com/recode/2022/2/2/22915110/facebook-meta-user-growth-decline-first-time-
metaverse-mark-zuckerberg-tiktok-competition-earnings
on October 6, 2022. Hsu, T. & Lutz, E. (2020). More than 1,00 Companies Boycotted Facebook. Did it Work? Retrieved
from https://www.nytimes.com/2020/08/01/business/media/facebook-boycott.html
on October 6,
2022.
Burch, Sean. (2018). The 5 Biggest Threats to Facebook After the Cambridge Analytica Fiasco.
Retrieved from https://www.thewrap.com/5-biggest-threats-to-facebook-cambridge-analytica/
on
October 7, 2022.
Facebook,
Inc.
(2021).
Form
10-K.
Retrieved
from
https://www.sec.gov/Archives/edgar/data/1326801/000132680119000009/fb-12312018x10k.htm
on October 8, 2022.
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