Facebook stock dives almost 20% on warning of slow revenue growth

Muriel Colon
July 28, 2018

Meanwhile, Facebook is also still coming to terms with the European Union's new privacy laws and the impact the rules will have on the business. Those problems hadn't mattered to the success of the business - until now. But the real question, he said, is whether the company can "continue to do what they are doing in the face of criticism from Wall Street".

Facebook's grim forecast predicts that margins will be much lower for the next few years due to "more choices around data privacy" as well as currency market predictions and the GDPR, according to a statement made by Facebook CFO David Wehener during the earnings call. Shares were down as much as 20 percent. "It just seems like the magnitude is beyond anything we've seen, especially across a number of the tech (companies) we cover".

Facebook has been an omnipresent part of American news for what seems like all of 2018, and rarely with a positive connotation. When UK regulators issued the largest fine they could against the company as punishment for the Cambridge Analytica data scandal, the tab amounted to £500,000 ($655,000), chump change for a company that brings in $40 billion a year.

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. "Our view is that the company is far from out of the woods", Brian Wieser of Pivotal Research said.

Facebook (NASDAQ:FB)'s European user base declined by 1 million users and as mentioned above, growth remained static in the United States and Canada. Q2 revenue rose a whopping 42%, to $13.0 billion, and net income was up 31%, to $5.1 billion. Analysts were expecting $2.1 billion, according to Thomson Reuters. The social network still holds one of the world's most valuable sets of data on what people are interested in, and makes that audience easily available to advertisers.

"Our total revenue growth rate decelerated approximately 7 percentage points in Q2 compared to Q1", he said. "W$3 hile the company is still growing at a fast clip, the days of 30%+ [revenue] growth are numbered", he wrote.

Some investors were also dismayed with Facebook's revelation about Instagram Stories, which allow users to post videos or photos that disappear after a day.

As many of you who regularly commute by public transport, or those who watched the World Cup may, have noticed Facebook has been on a push to regain user trust following its privacy scandals. Facebook's results prompted selling in other Nasdaq listings, including media and advertising rivals Amazon.com Inc, Netflix Inc and Alphabet Inc. Together, the entire Facebook suite of products has 2.5 billion unique monthly users, the company disclosed for the first time. "We've seen a greater-than-expected efficiency in a lot of our spend in things like warehouses, data centres, marketing".

Zuckerberg's critics believe appointing an independent chairman would lead to better management, while Facebook argues this would create "uncertainty, confusion, and inefficiency".

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