March 15, 2019 / 5:30 PM / 9 days ago

Breakingviews - Facebook departure is a wake-up call for investors

The entrance sign to Facebook headquarters is seen in Menlo Park, California, on Wednesday, October 10, 2018. REUTERS/Elijah Nouvelage

NEW YORK/SAN FRANCISCO (Reuters Breakingviews) - Mark Zuckerberg’s inner circle just got smaller. Chris Cox, the Facebook chief executive’s long-time lieutenant and chief product officer, is quitting after Zuckerberg last week outlined a new direction for the $470 billion social network. It’s hard to overstate how instrumental Cox has been. His departure is a wake-up call for investors.

Cox helpfully provided his reasons for leaving. In a Facebook post on Thursday that shed more light than a cryptic one-sentence regulatory filing, he wrote the upcoming transition is a “big project” and Facebook will “need leaders who are excited to see the new direction through.” Presumably he isn’t one of those.

Other departures in the last year have included Instagram founders Kevin Systrom and Mike Krieger, WhatsApp co-founder Jan Koum, security chief Alex Stamos and veteran policy chief Elliot Schrage.

But even in this parade Cox stands out. He has been with the firm for 13 of its 15 years and he’s arguably just as much an architect of Facebook’s platform as Zuckerberg. Other than Chief Operating Officer Sheryl Sandberg, he is perhaps the most important senior executive.

His exit may suggest Zuckerberg, who controls Facebook with supervoting stock and also serves as its chairman, is consolidating his power as he faces intense scrutiny from regulators around the world, mainly over the company’s use of personal data. It should also stamp out any doubts about the seriousness of Zuckerberg’s intent to change Facebook from an open connected platform to a private, encrypted network encompassing its Facebook platform, WhatsApp and Instagram.

That strategy is not, however, compatible with Facebook’s current model, which allows brands to target ads based on consumer data. Nearly all of the company’s $56 billion of revenue comes from advertising. It’s extremely profitable: Facebook’s operating margin is a chunky 45 percent. Pushing ads on private messages is a much harder sell.

Facebook’s shares were trading down more than 2 percent on Friday. Something over $10 billion of lost market value may be enough of a reaction to Cox’s exit. But it looks too little to allow for the smaller, radically different Facebook Zuckerberg seems to have in mind.

Breakingviews

Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.


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