SAN FRANCISCO — The question has hung around Facebook ever since it overtook Myspace a decade ago as the largest social network: When will Facebook peak?

Facebook’s historic stock plunge on Thursday has put that question front and center, reminding the company, its Wall Street investors and its 2 billion-plus users that it cannot keep growing at a torrid pace forever.

The past 18 months have been tough for Facebook. Ever since CEO Mark Zuckerberg said two days after the 2016 presidential election that it was “crazy” to think fake news on Facebook influenced voters, the social network has been under societal and political pressure to improve its platform. But through all the public relations crises, the company’s powerful advertising business showed few signs of slowing.

Now, for the first time since the early months of Facebook’s debut as a public company, analysts are wondering if there’s a ceiling to Facebook’s potential, and whether Facebook could hit the ceiling sooner rather than later. It is stuck in a seeming rut, unsure how to keep its ad business growing at a fast pace and how to pick which products it should focus on.

“They find themselves in transition,” said Mike Hoefflinger, a former Facebook marketing executive who wrote a book about the company. How Facebook will look on the other side is uncertain, he said, but the company is wrestling with big questions, including how to handle the leveling off of Facebook use.

Facebook executives insist the company is merely retooling, one of many periods of change since Zuckerberg launched the service from his Harvard dorm room in 2004. The company still forecasts double-digit revenue growth for its ad business for years to come, and there remains a potential market of 5 billion people worldwide who do not use Facebook or its products Instagram or WhatsApp.

But a 19 percent drop in Facebook’s share price on Thursday, driven by Wall Street’s concern over near-term profit margins, has also helped to focus broader concerns about where Facebook is going — not only as a business, but as a cultural force and a utility that people consider essential to their lives.

People problem

The simplest problem might be that there just aren’t many people left for Facebook to add. The social network has almost reached saturation in the United States and Canada, where the number of daily active users is stalled at about 185 million. Chief Financial Officer David Wehner told analysts on Wednesday that the company expects that number to “continue to bounce around,” without significant new growth.

FB: We converted all of humanity to our product. Every human soul on the Internet uses a Facebook product, or very soon will.



Wall Street: Growth concerns! SELL! SELL! — Antonio García Martínez (@antoniogm) July 26, 2018

Europe, which for years has helped fuel optimism in Facebook, poses an even larger challenge to user growth. The number of daily Facebook users in Europe fell by 3 million from a quarter earlier. Wehner blamed the dynamic on a tough new privacy law there that requires Facebook and other companies to gain explicit user consent before collecting and using their personal data in certain ways. Pressed by an analyst on whether usage in Europe would rebound, Wehner declined to answer, saying he could provide no guidance.

“Facebook is at a crossroads, but this is one we all knew would come eventually,” said Debra Aho Williamson, an analyst at research firm eMarketer. “It has had an incredibly long run of success in both revenue growth and user growth.”

Ad nauseam

Facebook’s user saturation problem is mirrored by an ad saturation problem. The company can squeeze only so many ads into its news feeds, so the stagnant growth in key markets leaves it trying to find other ways to make money, such as allowing marketers to bid up the average price of an ad.

“If they can’t grow their inventory, they need to make their inventory work harder,” said Dennis Yu, chief technology officer of marketing firm BlitzMetrics.

And Facebook needs users on its platform to look at those ads. Facebook warned in January that time spent by users had fallen by about 50 million hours a day as it tweaked its algorithms to show people fewer videos and other “passive” content in the news feed.

Facebook is also at the center of culture wars over what kind of speech it should allow. U.S. conservative activists allege they are being censored, while victims of harassment urge Facebook to be even more aggressive in taking down posts. Facebook posts in Myanmar, Sri Lanka and elsewhere are blamed for sparking in-person violence — and have pushed the company to dedicate resources to refereeing online debates.

Privacy concerns have prompted Facebook to launch a marketing campaign to shore up its image among users after the company acknowledged this year that the private information of up to 87 million users wrongly ended up in the hands of political consulting firm Cambridge Analytica.

If you can’t buy ‘em...

Facebook also faces a challenge in its other primary growth driver: acquisitions. Facebook has dominated the business of social media without a serious challenger since it surpassed Myspace around 2009 in part because it has acquired some potential rivals, such as Instagram and Whatsapp, while copying popular features like Snapchat’s video stories.

It is unclear, though, whether U.S. and European antitrust enforcers would allow Facebook to make another big purchase if there is overlap with its current business. Chief Operating Officer Sheryl Sandberg warned in May that any big acquisition might need to be in a new area.

Zuckerberg has said the company is in the middle of a multiyear process, one he hopes to complete by the end of next year, to fix its problems with security and speech.

Facebook’s long-term success, he told tech media website Recode this month, will depend on the “useful things” it is building. Examples include an online marketplace to buy and sell items and a way to find information after a natural disaster.

“The company shouldn’t be run to try to build something that is cool,” Zuckerberg said. “It should be run to build something that is useful and enduring.”