Is the Party over for this Tech Giant – Facebook?

Facebook (NYSE:FB) was lately seen to be on a sinusoidal trend with a heavy plunge followed by a slight rise as at July 25, 2018 as concerns on data privacy and warnings cited on revenues (to degrow by high single digits) and costs (to grow by 50-60%) with regards to performance in second half were seen to tear the group apart. Primarily, the monthly user data seems to be hit hard post the latest data privacy scandals. At the same time, another blow came from China. The group seems to have failed on the move on establishing a foothold in China once again, while second half performance has also been flagged to be debilitating.

Facebook has been banned in China for many years but the Silicon Valley company has always been determined to have its foothold in the censored market through someway or the other. What might be a recent trigger for Facebook to making its way into the market is a new app that has shown up in the country. The app according to Chinese app stores’ description works like the Facebook. It was earlier said that the app appeared to be a way for Facebook to test boundaries for an entry into China. On the other hand, executives from the company behind the colorful app, Beijing-based Youge Internet Technology, were photographed at a meeting with Facebook’s chief China representative and the Shanghai municipal government, and the app was however not indicated to be a product of Facebook. Even some Chinese developers created similar platforms in their place like Sina Weibo, which is on the similar lines of Facebook and Twitter, but this hasn’t stopped American tech giant from eyeing a piece of China’s huge market.

Facebook said that to groom and support the nation’s developers and start-ups, it aimed to set up an innovation hub. The new China hub for Facebook was slated to be opened in Hangzhou, which is also home to Chinese internet giant Alibaba Group Holding Limited, a major player in China’s mobile internet ecosystem and the owner of China’s two most popular e-commerce sites. Training and workshops to help developers and entrepreneurs were identified to be offered by the hub in the region to innovate and grow simultaneously. An initial investment of $30 million was indicated for financing of this subsidiary. The key aspect would still be coordinating with Chinese developers to move ahead in terms of setting presence in the market. The company has also established presence in countries including Brazil, France and India with the idea of expansion being kept strong.

The company was now aiming to expand its presence in China which is by size or number of users in the world’s biggest internet market, where its main platform of social network has been blocked by the government. Trying routes for selling ads to Chinese marketers and keen to reach international audiences to reportedly seeking offices for hardware staff, Facebook has been clear that it would like to re-enter China. Mr. Zuckerberg in a podcast interview with ‘Recode’ said that it was clear and there was no intersection between what Chinese government requires and what Facebook wants. Despite its key services being barred under Beijing’s strict censorship laws, FB was not shaken up in seeking access to the massive Chinese market, and even Google this year confirmed about opening a third office in Shenzhen.

The signs are that the government is not very comfortable with Facebook’s push into the country with its new hub in the capital of Zhejiang, Hangzhou which is a tech hub. From the website of China’s national enterprise credit information publicity system, Chinese media published screen shots of Facebook’s subsidiary’s official registration, but the same were later removed as of July 25, 2018. This has again raised concerns over the group’s presence amid the heightened US – China trade related issues. In fact, China’s national internet regulator, the Cyberspace Administration of China, has showed concerns over the approval and soon it appeared that China did not wait any further and the decision to take down the approval followed.

Facebook has always faced an upward battle between the stringent regulations and policing and entrenched competitive landscape; however, if they want the least resistance from China they might have to simply comply with the government rules, with regards to operating a server in China and should offer an amended version for only Chinese citizens.

At the moment, earnings’ warnings and the blow from China seems to be impacting the stock.

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