Facebook’s value crashes by $111bn

Alicia Cross
July 27, 2018

Facebook has recorded the biggest fall in corporate history as its value plunged by $120bn, when markets opened in NY.

On the Q2 earnings call, CFO David Wehner said the company expects revenue growth to slow to single digits over the next two quarters from 42% year-over-year in the second quarter.

In the USA and Canada, Facebook's daily active users remained flat sequentially at 185 million, while the number actually fell in Europe, falling to 279 million, down from 282 million.

Media analyst Michael Nathanson raised the possibility of Facebook engaging in "a very public act of self-immolation" to stave off regulation, both in the USA and in Europe, which just imposed tougher new privacy rules. $130 billion had been wiped off of Facebook's market cap as a result of the stock's plunge. Its shares also fell off the cliff in March in the wake of the Cambridge Analytica scandal.

Facebook has been left surrounded in a privacy scandal after it allowed an app to harvest data from 87 million user profiles around the world, which was then used by Cambridge Analytica in the 2016 U.S. presidential campaign and in the Brexit referendum.

For founder Mark Zuckerberg, the loss came to nearly $16 billion, according to Forbes, which tracks billionaire wealth in real time.

Facebook has also faced public image problems because of the way Russian Federation used the site to try to influence the 2016 US presidential election.

Young investors are betting that Facebook's earnings disaster and subsequent stock landslide are presenting a buying opportunity to get the stock at an attractive valuation.

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Earlier this month, Facebook revealed that a software bug that unblocked users who were previously blocked affected more than 800,000 users.

Some analysts however said it was too soon to write off Facebook or its growth prospects, and that the company may have simply been warning of the worst-case scenario. However, it saw monthly user growth of just 1.54 percent in Q2, down from 3.14 percent during the previous quarter, with monthly active users now at 2.23 billion.

Facebook's margin fell to 44 percent in the second quarter from 47 percent a year ago as it spent heavily on security and initiatives to convince users the company was protecting their privacy.

Advertisers and brands, he goes on, are still seeing strong ROI from advertising across Facebook and Instagram.

Ben Bajarin, an analyst at Creative Strategies, calls this "new territory" for Facebook. "GDPR is an added head wind, albeit containable", he said.

It's the first time Facebook missed an earnings report since 2015.

Late Wednesday, Facebook warned that its revenue growth will slow down significantly for at least the remainder of the year and that expenses will continue to skyrocket.

Other reports by Free-Prsite

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