Facebook shares, still reeling from earnings report, plummet 19 percent

Friday, July 27, 2018

Facebook shares dropped 18.96 percent Thursday in a dramatic slide a day after the social media giant released an underwhelming quarterly earnings report.

This drop wipes out $100 billion from the company's market cap, according to Birinyi Associates. Facebook's plunge was the biggest one-day drop in value for any publicly traded company.

Facebook shares closed at a record high of $217.50 Wednesday -- but then plunged in after-hours trading after the company reported earnings. The stock continued the slide when the market opened Thursday morning.

The earnings report revealed that user growth in the U.S. and Canada, Facebook's most valuable region of users by far, had plateaued.

Facebook also lost 3 million daily active users in Europe, which CEO Mark Zuckerberg attributed to the General Data Protection Regulation, which led to stricter privacy rules.

The company has been mired in privacy scandals, but hadn't seen a significant impact on share price until now.

Its relationship with Cambridge Analytica, the political data analytics firm that ran data operations for Donald Trump's 2016 presidential election campaign, uncovered violations of data collection and retention policies.

As many as 87 million unwitting users may have had their information taken; Cambridge Analytica, however, says it licensed data for no more than 30 million people.

Earlier this month, Facebook revealed that a software bug that unblocked users who were previously blocked affected more than 800,000 users. In June, another software bug that made some posts public, despite users' privacy settings, may have affected 14 million users.

As a result, the company has doubled down on security. But Zuckerberg acknowledged on Wednesday's earnings call that "security is not a problem that you ever fully solve."

Sheryl Sandberg, the company's chief operating officer, said the company wants to "ensure that Facebook is a safe place for people and businesses."

"We've taken strong steps to address a number of issues, including election integrity, fake news and protecting people's information," she said.

For the first time, Facebook announced the global reach of all of its applications -- Facebook, Instagram, Messenger and WhatsApp. Just in June, a total of 2.5 billion people worldwide used one of these applications, the company said.

Facebook ad revenue also grew 42 percent year-over-year.

Still, that was slightly below Wall Street expectations.

Facebook CFO David Wehner predicted that revenue growth rates would continue to decelerate for the rest of 2018 due to currency headwinds, growth and promotion of low-monetization features like Stories, not to mention giving users more choices around data privacy.

As to why the stock dropped so sharply, analyst Gene Munster said the stock drop "makes sense given what they revealed [Wednesday]. The future is going to be different."

"The days of hyper-growth are over. Even if engagement is negatively impacted, it still has incredible, unprecedented reach," Munster added. "It's still going to be a key player in tech, but not growing as fast as it used to."

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