Facebook faces day of reckoning, at least on Wall Street

Facebook faces day of reckoning, at least on Wall Street

Troy Powers
July 27, 2018

Facebook's stock value crashed as trading opened, with share prices falling by around 18% after a hard second-quarter for the social media giants. Wehner said the company will invest billions of dollars per year improving safety and security after a bruising period of headlines about Facebook's role in enabling fake news and election meddling.

Chief financial officer David Wehner warned Wednesday in an earnings call with analysts that revenue growth had already "decelerated" in the second quarter and would drop "by high single digit percentages" in coming quarters. "In the US and Canada, Facebook's daily active users remained flat sequentially at 185 million, while the number actually fell in Europe, falling to 279 million, down from 282 million", writes Fox News.

In an understandable development at the announcement, Facebook's stock has taken a tremendous nosedive, down almost 20% at peak. At that point, the stock was still recovering from an earlier battering over its big privacy scandal, in which a political consulting firm with ties to President Donald Trump improperly accessed the data of tens millions of Facebook users. That saw Facebook break a stock market record, but you're probably not going to see Mark Zuckerberg updating his CV any time soon.

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Facebook said the European privacy rules, called General Data Protection Regulation, or GDPR, did not have a big effect on the quarter's revenue, but also noted that they were only in effect for about a month before the quarter ended.

During the second quarter, Facebook's user base also stagnated or shrank in some markets.

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Nasdaq futures dropped 0.85 per cent late on Wednesday, suggesting the technology-heavy Nasdaq Composite index would fall when trading opens on Thursday morning.

Siva Vaidhyanathan, a media studies professor at the University of Virginia and author of the new book, "Antisocial Media: How Facebook Disconnects Us and Undermines Democracy", dismissed the significance of the stock plunge. But the number of American users who use Facebook every month has flatlined, the company reported, raising questions about how much longer the social network can continue to expand in the USA market.

"The company has a track record of resetting revenue growth and expense expectations only to turn around and exceed those expectations the following quarter", said Gene Munster of Loup Ventures.

Of 47 analysts covering Facebook, 43 still rate the stock as "buy", two rate it "hold" and only two rate it "sell".

"T$3 he fundamental damage to the Facebook platform has been "very contained" in our opinion and is generally better than feared from the white-knuckle period a few months ago", he added.