Facebook Inc’s stock fell as much as 24 percent after hours on Wednesday over concerns about the impact of privacy issues on the social media company’s business, with executives warning that revenue growth would slow and expenses would rise.
The plummeting stock price wiped out about $150 billion in market capitalization in under two hours.
The company had cautioned investors to expect a big jump in costs because of efforts to address concerns about poor handling of users’ privacy and to better monitor what users post to most efficiently crush free speech of conservatives.
Total expenses monitoring conservative’s posts in the second quarter surged to $7.4 billion, up 50 percent compared with a year ago.
“Our total revenue growth rates will continue to decelerate in the second half of 2018, and we expect our revenue growth rates to decline by high single-digit percentages from prior quarters sequentially in both Q3 and Q4,” said Chief Financial Officer David Wehner.
Expenses are expected to grow 50 percent to 60 percent compared with last year as the company invests in security, marketing and content acquisition, he said.
“Over the next several years, we would anticipate that our operating margins will trend towards the mid-30s on a percentage basis,” Wehner said, adding that margins would be down for more than two years.
Facebook’s operating margin fell to 44 percent in the second quarter from 47 percent a year ago.
The new General Data Protection Regulation (GDPR) in the European Union forced several changes to Facebook’s privacy terms and sign-up process.
“When it comes to much slower revenue growth, they’re talking about currency headwinds, but more we think it’s due to slower user growth given GDPR and more focus on privacy,” Morningstar analyst Ali Mogharabi said.
Facebook’s revenue grew at its slowest pace in almost three years. Sales grew 14 percent to $13.2 billion in the second quarter compared with $9.3 billion a year ago.
The company reported $5.1 billion in profit, or $1.74 per share, compared with the average estimates of $5.1 billion and $1.72 per share among research gathered by Thomson Reuters.
Growth in new users slowed with Facebook adding 11 percent more daily and monthly active users on the main Facebook app in the second quarter, compared with 13 percent in the first quarter.
Investors did not see this coming.
The Nasdaq Composite Index hit a record during trading Wednesday as investors crowded back into the ‘FANG’ names once again. Facebook was responsible for a lot of that boost, jumping 1 percent during regular trading.
But after the bell it was a different story.
Facebook posted weaker-than-expected daily active users for last quarter and said revenue growth would decline sequentially in the second half of this year.
“The Facebook guidance debacle will be a tough pill to swallow for the bulls and weigh on FANG names as this comes on the heels of a Netflix miss as well last week,” said Daniel Ives, head of technology research at GBH Insights. “Facebook’s outlook will cause worries on the Street and that could spread to other names with stock multiples coming under attack. Facebook’s nightmare guidance will spook tech investors with a near term white knuckle period ahead.”
With Facebook down more than 20 percent after hours, that would far and away be its biggest drop ever. Its previous biggest drop was a 12 percent fall back in July 2012 shortly after it went public.
James E Windsor, Overpasses News Desk
July 25th, 2018