Facebook controversies hit it where it hurts most - growth

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. It's been a volatile day for the company's stock, which reached a record high Wednesday morning before the earnings report came out.

Facebook Inc. faced a day of reckoning as its shares plunged Thursday in the company's worst trading day since going public in 2012. Zuckerberg testified before Congress earlier this year after it was revealed that political consulting firm Cambridge Analytica improperly obtained data of 87 Facebook million users.

Facebook CEO Mark Zuckerberg's net worth plummeted more than $15 billion with the stock dive, although it's still around $67 billion, according to Forbes' real-time net worth tracker.

After the earnings report, executives worked to explain the potential of Facebook's other properties, not just the main social network, to fuel growth. Misinformation on WhatsApp contributing to mob killings in India have added to the pressure on Facebook to re-evaluate how its services maintain security and decorum.

But there are now 2.23 billion people using Facebook.

Investors were watching closely to see the a post-Cambridge Analytica #DeletFacebook campaign had impacted user count, but across the board Facebook's daily active users actually rose to 1.47 billion, up 11% year-on-year though still below the 1.48 billion predicted. "Call us cynical, the shot-out that GDPR can be blamed for slower forward growth may be seen in Brussels as a sign that their work is done".

The drop translates to a US$119.4 billion (NZ$176b) decline in Facebook's market capitalisation, the largest-ever daily fall in value of a United States traded company.

7 26 18 biggest market cap drops COTD
Business Insider Joe Ciolli Andy Kiersz data from Bloomberg

Facebook's chief operating officer Sheryl Sandburg said that it will be an "important opportunity for growth" because they are more "authentic" and "engaging".

The company earned $5.1 billion, or $1.74 per share, up 31 percent and above analysts' estimates of $1.71.

For founder Mark Zuckerberg, the loss came to nearly $16 billion, according to Forbes, which tracks billionaire wealth in real time.

Rahul Shah, chief executive officer at Ideal Asset Management in NY, a Facebook shareholder, said executives were trying to reset expectations about growth but the outlook caught Wall Street by surprise.

"Unlike Netflix, whose quarterly shortfall we saw as temporary, here we see an evolution of the story, albeit a portion of which we expected", said Daniel Salmon, analyst at BMO Capital Markets.

Facebook has struggled in recent years with several privacy issues.

Late Wednesday, Facebook warned that its revenue growth will slow down significantly for at least the remainder of the year and that expenses will continue to skyrocket.

  • Eleanor Harrison