Facebook makes history in $120bn shares slide

By Sarah Frier

Facebook plunged over 17% after months of scandal and criticism finally hit the company where it hurts.

The social-media goliath’s financial performance had previously seemed immune to fierce critiques of its content policies, its failure to safeguard private data, and its changing rules for advertisers.

But late on Wednesday, Facebook reported sales and user growth numbers for the second quarter that fell short of analysts’ projections, leaving investors reeling.

And then yesterday, its shares fell the most in its history as a public company, wiping out more than $120bn (€102.5bn) in market value. It marks the largest ever loss of value in one day for a US traded company.

For founder Mark Zuckerberg, that means his shares had shrunk by $15.1bn in value in the first five minutes of trading, leaving him with about $71bn. Facebook is still valued at just under $630bn.

The company told Wall Street the numbers won’t get any better this year.

Chief financial officer David Wehner said revenue growth rates would decline in the third and fourth quarters.

Analysts who follow Facebook were blindsided, asking frequently on a conference call with executives for more information on exactly how the company’s financial future had changed so dramatically. “I think many investors are having a hard time reconciling that deceleration,” Brent Thill, an analyst at Jefferies, told Facebook executives.

“It just seems like the magnitude is beyond anything we’ve seen, especially across a number of the tech [companies] we cover.”

Before the results, Facebook had 44 buy ratings, two sells and two holds.

The results followed a period in which data-privacy issues came under harsh scrutiny. The quarter was also marked by the EU’s implementation of strict new data laws, which Facebook said led to fewer daily visitors in Europe.

The company was bombarded by public criticism over its content policies, especially in countries such as Myanmar and Sri Lanka where misinformation has led to violence. And it continued to suffer fallout from investigations into Russian manipulation of the platform during the 2016 US presidential election.

All of those problems are hitting amid a harsh truth for the company: Facebook, the social network with 2.23bn active monthly users, can’t grow forever.

“The core Facebook platform is declining,” said Brian Wieser, an analyst at Pivotal Research Group.

Facebook said it had 1.47bn daily active users in June, compared with the 1.48bn average of analysts’ estimates.

The company’s user base flatlined in its biggest market, the US and Canada, at 185m daily users, while declining 1% in Europe to 279m daily users.

Overall, average daily users increased 11% from the period a year earlier. The social network still holds one of the world’s most valuable sets of data on what people are interested in. It remains in a dominant position in mobile advertising alongside Google.

After the General Data Protection Regulation went into effect in the EU, Facebook started asking people to check their privacy settings and make sure they wanted to share certain kinds of data.

Facebook is rolling out a version of those protections to the rest of the world. If users choose to share less data with Facebook, that could hamper the company’s ad-targeting abilities.

Bloomberg


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