Facebook shares take hit following missed revenue expectations

Brian Sheehan, a Syracuse University professor of communication and advertising, said the weak forecast “made investors nervous about more basic long-term issues” with the huge social network, notably its diminished appeal to younger users.

“Bears win this quarter. but not the war”, said Brent Thill, an analyst with Jefferies.

Advertising revenue for the quarter was $13.04 billion, missing analyst forecasts of $13.16 billion. The number of North American users remained flat on the previous quarter at 185 million, but in Europe Facebook lost some 3 million daily users – a decline Facebook chief executive Mark Zuckerberg attributed to GDPR.

Shares, which had declined about 7 per cent in extended trading on Wednesday (July 25), fell as much as 23 per cent after Wehner’s comments on a conference call with analysts, wiping more than US$130 billion (S$176.55 billion) off the company’s market value. This translates to a US$124 billion decline in market capitalization, which is the largest ever loss of value in one day for a USA traded company.

In an understandable development at the announcement, Facebook’s stock has taken a tremendous nosedive, down almost 20% at peak. The last time the company missed revenue estimates was the first quarter of 2015.

Despite so many people already being on Facebook, daily and monthly users were up 11 percent year-over-year. Facebook sales increased 47 per cent, year over year, in both the third and fourth quarters, of 2017. But in addition to this we also have a responsibility to keep building services that bring people closer together in new ways as well. The US and Canada’s figures were unchanged at 241 million.

Note: Chart shows the biggest historic drops in companies worth more than $150 billion.

Zuckerberg has had to appear in front of lawmakers, has apologized profusely and has tied himself into knots explaining what he will and will not allow to appear on the social network. “The Facebook board isn’t panicking”. Today, Facebook’s chief legal officer announced he’s departing at the end of this year for family reasons.

Expenses will rise by 50% to 60% this year as Facebook invests in data security, new technology and other initiatives, CFO David Wehner said.

Analysts are watching to see how Facebook recovers from the Cambridge Analytica scandal, a data firm that improperly accessed information from as many as 87 million Facebook users.

Facebook has other bright spots. The share price was on its way to the biggest single-day drop in the company’s history.

Revenue increased 42 percent to $13.2 billion in the quarter.

Facebook has come under harsh scrutiny for its handing of the Cambridge Analytica privacy scandal and criticisms of its content policies, especially in places like Sri Lanka and Myanmar, where posts contributed to violence, and its efforts to tamp down the spread of misinformation on the platform.

Still, the challenge will be how to stem further losses. Rich Greenfield, an analyst with BTIG, issued a report titled “Facebook’s Death Has Been Greatly Exaggerated (By Facebook)”.