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

Facebook forecasts slowing growth, rising expenses; shares fall 19 per cent

Facebook forecasts slowing growth, rising expenses; shares fall 19 per cent

Shares, which hit a record high Wednesday, plunged as much as 11% after Facebook posted the results.

Chief executive Mark Zuckerberg told the call the tech giant has been investing heavily in "safety, security and privacy" after being rocked by concerns of manipulation of the platform to spread misinformation and the hijacking of user data. It also came as Europe implemented strict new data laws, which Facebook had warned could lead to fewer daily visitors in that region.

"It wouldn't be surprising if a couple million very irritated Brits left Facebook", says Brian Wieser, analyst with Pivotal Research.

The Palo Alto, Calif., company reported revenue of $13.23 billion, up 42 percent year over year - but just short of analysts' expectations of $13.3 billion.

"This [Instagram] has been a story of great innovation and product execution", praised Zuckerberg, who added that Facebook's sprawling infrastructure enabled Instagram to scale twice as fast to where it is now with 1 billion monthly active users. The social media giant's shares are plunging at breakneck speed of nearly 20% in after-hours trading. Total expenses in the second quarter surged to $7.4 billion, up 50 per cent compared with a year ago.

Despite the rocky quarter, Facebook shares had hit an all-time high before Wednesday's earnings report and its quarterly revenue was still up 42 percent from this time previous year.

In announcing its latest earnings on Wedneday, the social media company reported 2.23 billion monthly active users, shy of Wall Street forecasts of 2.25 billion.




Instagram is expected to account for 18 per cent of Facebook's revenue this year and 23 per cent next year, according to research firm EMarketer. In Europe, Facebook had to respond to new privacy rules. The company may have halted more ad purchases than expected as it applied a broad definition of what's considered "political".

The company remains in a dominant position in mobile advertising alongside Alphabet Inc's Google.

The proximate cause was the company's disclosure its revenue rate growth will slow precipitously in the current quarter and the next one. At the stock's lowest point, more than $148 billion of the company's value - significantly more than the entire market cap of IBM ($134 billion) - had been wiped out. It owns three other properties with more than 1 billion users: WhatsApp, Messenger and Instagram. After plummeting in the weeks after the scandal, the stock had soared well above pre-scandal levels, especially after a strong financial performance in the first quarter.

Facebook has said it will increase spending to make investments in video content, and on new bets like artificial intelligence and virtual reality. The company is also rapidly expanding its real estate around the world to accommodate a hiring spree, which includes thousands of new workers to help combat foreign election manipulation on the site.

Over the long term, GDPR may end up favoring Facebook and other large companies that have the resources to adapt to new requirements.

Facebook's headcount increased 47% year-on-year, to 30,275 as of June 30, 2018.

In early April, Facebook revealed in a blogpost that Cambridge Analytica may have gained 37m more users' data than originally reported, bringing the total number of people who may have been affected to 87m.

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