Facebook stock dives almost 20% on warning of slow revenue growth

28 July, 2018, 10:14 | Author: Sally Reid
  • MarketWatch

But the Silicon Valley company's streak ended Wednesday when it said that the accumulation of issues was starting to hurt its multibillion-dollar business and that the costs are set to continue playing out for months.

The 19 percent drop vaporized $119 billion of the company's stock-market value; CEO Mark Zuckerberg saw his net worth fall by roughly $16 billion as a result.

"Facebook is actively choosing to make less money, deprioritizing near-term monetization to drive engagement to even higher levels to capture even more of their 2.5 billion monthly users' time and attention", he wrote.

Despite the rocky quarter, Facebook shares had hit an all-time high before Wednesday's earnings report and its quarterly revenue was still up 42 percent from this time past year. In addition, the company expects to invest in products like Stories "that now have lower levels of monetization", while the introduction of new controls for users to limit their data-sharing with Facebook "may have an impact on our revenue growth", the CFO said.

Facebook boss Mark Zuckerberg's fortune has shrunk by nearly $16 billion after the social network was clobbered by the biggest one-day price drop in stock market history.

On a call with analysts, Facebook advised it expected its revenue growth rates to be lower than the year prior, especially in the second half of this year. The company's user base flatlined in its biggest market, the US and Canada, at 185 million daily users, while declining 1 per cent in Europe to 279 million daily users.

Assuming 484 million shares outstanding, as indicated in Amazon's second-quarter financial statements, this would put the company's market capitalization at $1.06 trillion.

7 26 18 biggest market cap drops COTD
Business Insider Joe Ciolli Andy Kiersz data from Bloomberg

Facebook has recorded the biggest fall in corporate history as its value plunged by $120bn, when markets opened in NY. "We're starting to see that this quarter", he said.

The new General Data Protection Regulation in the European Union forced several changes to Facebook's privacy terms and sign-up process.

On Wednesday the initial fallout from Cambridge Analytica appeared in Facebook's financial results and forecast and it was a game changer. Mobile advertising revenue is also up, and now represents 91% of advertising revenue for the second quarter of 2018, which is up from approximately 87% of advertising revenue in the second quarter of 2017.

Some investors were also dismayed with Facebook's revelation about Instagram Stories, which allow users to post videos or photos that disappear after a day.

"The company has a track record of resetting revenue growth and expense expectations only to turn around and exceed those expectations the following quarter", said Gene Munster of Loup Ventures.

Toward the end of the call, a Jefferies analyst seemed astonished at the scale of the growth slowdown, saying it "seems the magnitude is beyond anything we've seen". And he reiterated a point made during earlier calls: that Facebook's profitability will suffer because of its heavy investments in security.

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