The social media giant has suffered the biggest single-day loss in the history of the Nasdaq Stock Exchange.
The result meant Facebook’s 34-year-old CEO, Mark Zuckerberg, lost around US$15 billion in stock wealth and tumbled out of the top five of Forbes’ list of billionaires. Earlier this year, he looked set to eclipse Warren Buffett on the list.
The shock downturn came after the company forecast lower sales growth for the second half of the year. It is also facing much higher costs for security after now-defunct consulting firm Cambridge Analytica harvested the data of tens of millions of Facebook users.
BREAKING: Facebook stock collapse wipes out $119 billion in market value, one of the worst single-day losses in history.
— The Associated Press (@AP) July 26, 2018
The company’s market value had previously seemed immune to the privacy breaches and scandals, but investors have been spooked by user growth being sluggish in North America and declining in Europe.
Facebook facing slowing revenue growth
The California based company reported US$5.12 billion in net income for the quarter, up from US$3.89 billion in the same quarter last year.
But Chief Financial Officer David Wehner revealed that Facebook anticipates the revenue growth slowdown to continue. Increasingly, Facebook users are selecting options to limit advertising, resulting in overall lower revenue.
— Slate (@Slate) July 26, 2018
Much of its current growth is driven by less profitable markets outside its US base.
Considering all these factors, Facebook said its margins would fall to the mid-30% range, down from 44% in the most recent quarter.
“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,” Wehner said.
He also said the company forecasts expenses to rise around 50-60% from last year. Zuckerberg has previously said the company will need to hire around 20,000 staff to bolster security and rebuild user confidence in the platform in a project that will take years to complete.
Does Facebook's plummeting stock spell disaster for the social network? https://t.co/IprfJh5kOM
— The Guardian (@guardian) July 26, 2018
What are analysts saying about Facebook’s falling share price?
Analysts at JP Morgan said the social media platform was facing a range of challenges, with regulators and lawmakers increasingly eager to scrutinise and regulate the site.
Peter Najarian, co-founder of Investitute.com, told CNBC the lower share price represented an opportunity for investors. He said the company “continues to grow at an incredible pace” and was optimistic about its potential to open up new revenue streams through its pivot to video.
Other analysts have noted that Facebook has low-hanging fruit in the form of Whatsapp and Facebook Messenger, which both have more than a billion users but are yet to be monetised.
Facebook’s one-day loss was easily the largest in history. The previous biggest loser was Intel, which saw around US$91 billion wiped off its market value on 22 September 2000, at the height of the dot com bubble.