Facebook's stock dives 20% on dire predictions following second-quarter financials

A man uses a smartphone in front of an electronic board showing Hong Kong share index outside a bank in Hong Kong Friday

A man uses a smartphone in front of an electronic board showing Hong Kong share index outside a bank in Hong Kong Friday

Facebook stock sank after it warned investors that it saw slower revenue growth ahead, and that its user base and revenue grew more slowly than expected in the second quarter.

Facebook has lost around one million users in Europe thanks to new data protection regulations.

That "bombshell", as one analyst termed it, played into concerns on Wall Street that Facebook's model could be under threat after a year that has been dominated by efforts to head off concerns over privacy and fake news.

Yet the company said it expects an operating profit between $1.4 billion and $2.4 billion, up from $347 million a year earlier.

Facebook also had 185 million North American DAUs and 279 million European DAUs, below the FactSet forecasts of 185.4 million and 279.4 million respectively.

The stock, which plunged as much as 24% in after-hours trading Wednesday, had a cascading effect on competitors Snap and Twitter, which dropped, too.

During the call, Facebook Chief Executive Mark Zuckerberg tried to recast the disappointing earnings.

A woman walks past an electronic board showing Hong Kong share index outside a bank in Hong Kong Friday
A woman walks past an electronic board showing Hong Kong share index outside a bank in Hong Kong Friday

Other companies have, in the past, experienced similar plummets on the stock exchange, if not quite as severe as Facebook, who are now battling new data laws and public concern over their privacy policies.

Mobile advertising continued to to show gains, representing 91% of total ad sales, up from 87% in the second quarter of 2017.

But there's also been a notable slowdown in user growth. Facebook attributed the weaker outlook to unfavorable currency conditions, investments in new products and bolstered privacy tools that may put the brakes on breakneck revenue growth. The CEO's own fortune lost $15.4 billion (€13.2 billion) of its value.

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. The results spelled out disaster for its market value, despite the company heading into Wednesday with a share price of $217.50.

"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. "I find that deeply offensive, but at the end of the day, I don't believe that our platform should take that down because I think there are things that different people get wrong". The company has been hiring more people and concentrating resources to improve privacy and data security, and increase policing of the site to tackle misinformation and election interference.

Describing the announcements as "bombshells", Baird analysts said the issues were to a large degree "self-inflicted" as Facebook sacrifices its core app monetisation to drive usage.

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