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Facebook stock plunges more than 20 percent

26 July, 2018, 13:24 | Author: Kristi Dunn
  • Facebook's CEO Mark Zuckerberg on the end of a $17bn hit if shares don't recover. Reuters

Zuckerberg in January said he was going to adjust the news feed to make sure people spend more time on Facebook with meaningful content from their friends and family members - a move the company has said would decrease user engagement with the site.

Facebook lost more than one hundred billion dollars in market value in a matter of hours on Wednesday after the internet company told investors to expect revenue growth rates to decline for the remainder of the year. It would also wipe his US$13.7 billion ($20 billion) of gains for the year, leaving him with just less than US$70 billion ($102.2b).

Facebook shares were torched in after-hours trading on Wednesday, tumbling more than 20 percent after the social network revealed fewer daily and monthly users than expected in the second quarter - and forecast 2018 growth much lower than Wall Street forecast.

Nearly all of Facebook's revenue - US$13 billion of the total US$13.2 billion - came from online advertising, a sector dominated by the California social network along with Silicon Valley rival Google. The company is grappling with new data laws in Europe, criticism over its content policies and privacy issues.

Moreover, the user count also dropped in Europe where it is dealing with newly introduced General Data Protection Regulation following the Cambridge Analytica scandal.

During the conference call, Facebook executives warned that revenue growth rates will decline by "high single digit" percentages in the coming quarters.

Facebook founder and current centre of controversy, Mark Zuckerberg, seemed unfazed by the loss of users. The company displayed mixed results in its Q2 2018 earnings and this can be contributed to the GDPR, Zuckerberg's testimony before Congress, as well as more scandals that might have contributed to Facebook's weak user growth for this quarter.

Facebook's disappointing second-quarter performance marks the first full quarter since one of its biggest scandals to date.

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The shift in Facebook's business fortunes follows a series of crises that began in late 2016 with the revelations that it had become a prime distributor of misinformation.

Facebook said it had 1.47 billion daily active users in June, compared with the 1.48 billion average of analysts' estimates compiled by Bloomberg.

Revenue increased 4% to $13.2 billion in the quarter.

In addition, Facebook said its daily active users rose 11 percent from a year earlier to 1.47 billion, compared with 13 percent growth in the previous quarter.

Strong ad sales from Google, which is Facebook's main competitor for online advertising, had sent expectations for the social network's earnings up, along with its stock price.

Growth in the number of users who logged in each day fell short, too, up 11 percent year-over-year at 1.47 billion but still less than the 1.49 billion anticipated. The company owns three other properties with more than 1 billion users: WhatsApp, Messenger and Instagram.

Operating profit margin, which fell to 44 percent in the second quarter from 47 percent a year ago, will sink to the "mid-30s" for more than two years, Chief Financial Officer David Wehner said in investor guidance.

Zuckerberg said Wednesday that he was hopeful Facebook would be able to limit disinformation and fake accounts, and that the company was able to do so in elections this year in France, Mexico and Germany.

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