Wednesday, 24 October, 2018

Facebook stock dives almost 20% on warning of slow revenue growth

Facebook shares sink 8% as Q2 revenue and user growth misses analyst estimates Facebook stock dives nearly 20% on warning of slow revenue growth
Scott Davis | 28 July, 2018, 19:50

The huge fall came after Facebook published its earnings report for the second quarter of 2018, which revealed the company is growing at a slower rate than predicted.

Facebook's fortunes shifted in under two hours as the company first reported revenue and user growth that missed expectations and then issued warnings about future growth and expenses.

"A big contributor to the quarter and the last few quarters obviously has been strong growth in our highest profitability businesses and also advertising", Brian Olsavsky, Amazon's chief financial officer, said on a call with media. Facebook's stock price now stands at $176.26, having dropped by a massive 18.9% from the $217.50 value that it stood at before the company's earnings call.

Facebook stock plunged Thursday, marking its worst day of trading since the company went public in 2012.

The company had warned investors to expect a surge in costs due to efforts needed to address concerns about the Cambridge Analytica scandal and Facebook's inadequate handling of users' privacy. Though Facebook-specific global DAU rates were up 11 percent year over year - with growth led through users in India, Indonesia and the Philippines - it was less than Wall Street was projecting.

This is the second time this year Facebook's stock has taken such a dramatic downturn.

After falling overnight on Wednesday, Facebook shares were down as much as 19.6pc at $174.78 each in early trading yesterday in the USA, a decline that would wipe about $124bn off the company's value - or almost four times the entire market capitalisation of Twitter.




On a call with analysts, Facebook advised it expected its revenue growth rates to be lower than the year prior, especially in the second half of this year.

The company also said that revenue growth from emerging markets and the company's Instagram app, which has been less affected by privacy concerns, would not be enough to fix the damage. The new privacy law forced several changes to Facebook's privacy terms and sign-up process, leading a minority of users to opt for non-personalised ads, which tend to generate less revenue.

Or the situation could showcase the potential for GDPR to mess things up, as it would appear that European Union citizens are becoming more concerned about their data privacy.

The new $10 million bump works out to an extra $27,000 a day Facebook is spending on protecting its chief. A decade ago, nearly no one could have imagined that Facebook would have more than 2 billion users, much less that its family of apps - Instagram, WhatsApp and Messenger - would also count members in the billions. Commercialisation of those apps is nascent.

Costs in this area rose by around a half compared to the same period previous year.

Facebook said the slowdown would come in part from a new approach to privacy and security, but also appeared to acknowledge the limits of growth in advertising, which accounts for virtually all its revenue.

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