Facebook Loses a Quarter of Its Value After Dismal Earnings

July 25, 2018

Shares of Facebook continued to plunge Thursday, wiping more than $100 billion from its market cap in just hours after the company's CFO forecast a significant drop in revenue growth and margins in the coming quarters.

"Looking beyond 2018, we anticipate that total expense growth will exceed revenue growth in 2019," said Chief Financial Officer David Wehner on a conference call Wednesday. "Over the next several years, we would anticipate that our operating margins will trend towards the mid-thirties on a percentage basis."

Wehner's comments on the conference call came after Facebook said revenues grew less than expected in the second quarter, and its user count missed estimates. The statements accelerated losses in the stock, which was down as much as 24 percent after hours.

"[We see] substantial legal and regulatory issues, and really structural changes in the business model, that we're going to see evolve over the next couple quarters at the least," said CFRA analyst Scott Kessler.

In the first earnings report to cover a full quarter since the Cambridge Analytica scandal broke, the social media network said monthly active users grew 11 percent from a year ago to about 2.23 billion people, though analysts were looking for 2.25 billion. Users in the U.S. remained at 241 million, the same level as at the end of March, while users in Europe fell for the first time.

"I think we've hit a point with Facebook where user growth is just going to slow down," said Jason Moser, analyst at Motley Fool, in an interview to Cheddar.

Revenues came in at about $13.2 billion for the quarter, also short of estimates.

The company has been plagued by criticism over how it handles user data for months, and CEO Mark Zuckerberg has not only issued several rare public apologies but even testified before Congress on the issue.

Facebook was also hit with calls to better police the content on its platform, most recently after the company refused to take down a post from right-wing conspiracy theorist Alex Jones, threatening Special Counsel Robert Mueller.

Ad sales rose 42 percent during the quarter but were outpaced by a 50 percent increase in costs, driven by added efforts to address those issues.

Facebook's stock drop, the biggest on a percent basis ever for the company, erased all the gains it had made since its last earnings report three months ago. The loss in market value was bigger than the entire market cap of IBM, McDonald's, and Nike.

The results put pressure on the entire tech landscape, with shares of Amazon, Twitter, Snap, and Google parent Alphabet all falling in sympathy.

Quick facts from Facebook's Q2 earnings report:

  • Earnings per share: $1.74 vs. $1.72 estimate
  • Revenues: $13.23 vs. $13.36 billion estimate
  • Monthly active users: 2.23 billion vs. 2.25 billion estimate
  • Daily active users: 1.47 billion vs. 1.49 billion estimate
  • Monthly active users in Europe fell for the first time
  • Mobile ad revenue accounted for 91 percent of all ad revenue
  • Ad revenue grew by 42 percent, but costs grew by 50 percent

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