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How anxious should Facebook be after its market collapse?

28 July, 2018, 10:15 | Author: Kristi Dunn
  • Facebook shares sink 8% as Q2 revenue and user growth misses analyst estimates

But that was perhaps expected, in the aftermath of the data privacy scandal and the constant debate about the company's moderation policies for content posted on the social network.

But the Silicon Valley company's streak ended Wednesday when it said that the accumulation of issues was starting to hurt its multibillion-dollar business and that the costs are set to continue playing out for months.

For Q2, Facebook's daily active users increased 11% year-over-year, to 1.47 billion on average during the month of June. Revenue jumped 39% to $52.89 billion, slightly below the consensus estimate of $53.41 billion.

The startling decline comes after Facebook reported user growth and sales that fell short of investor expectations, leading many shareholders to frantically sell their stock on Wednesday night before market close.

Facebook had already warned investors ahead of the market opening that they should expect a significant decline in growth rate, with users in Europe falling from 282 million to 279 million. 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.

After all, from what little we know, the kids these days seem to be into Snapchat and Fortnite rather than posting semi-snide comments about the bridesmaid dress your friend has just got for Aunty Edwina's third marriage. And it seemed Facebook would shrug off the recent rash of scandals, too - Russian election interference, the mishandling of as many as 87 million people's personal information by Cambridge Analytica and the unchecked spread of fabricated news.

"We suspect Facebook is sticking with its historical playbook and will, in fact, beat these lower numbers". New options Facebook is offering users to opt out of certain data collection - inspired in part by a new privacy law in Europe - could lead to less advertising revenue.

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"Nobody knows where the top is, where that growth slows down", said Phil Bak, CEO of Exponential ETFs and a former managing director of the New York Stock Exchange who said he's been warning investors of a potential sell-off in large tech stocks.

Facebook has faced dozens of lawsuits over its handling of user data in a scandal also concerning the United Kingdom firm Cambridge Analytica.

Facebook founder Mark Zuckerberg could lose his position as chairman of the firm.

More likely, though, market buzzards are holding off because of how quickly some analysts are turning on the company.

Richard Windsor, a technology analyst who writes the Radio Free Mobile blog, said the new outlook should not be surprising.

"The guidance from management over their expectations for revenue growth to decelerate so markedly for the rest of the year did take us, and the market, by surprise", said Christopher Rossbach, chief investment officer at J. Stern & Co. "We run the company for the long term, not just for this quarter", he said.

"Although the Facebook platform is beginning to see slowing growth, the company's other products are still seeing dramatic growth", says Michael Pachter of Wedbush.

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