Facebook is sued after stock plunge 'shocked' market

Dwayne Harmon
July 28, 2018

It was the first full financial report since Facebook became embroiled in the Cambridge Analytica scandal in March. Quarter after quarter, Facebook has been a remarkably reliable growth machine. By the time Wall Street closed yesterday, Facebook had lost over $120 billion of the company's value and shareholders are not happy.

The plummeting stock price wiped out as much as US$150 billion in market capitalisation and erased the stock's gains since April when Facebook announced a surprisingly strong 63 per cent rise in profit and an increase in users.

Facebook itself could be set for its worst day in six years as a public company as its stock dipped 20.4 percent to $173.20 in premarket trading. Facebook warned that its operating margins would fall from its current 44 percent to the "mid-30s".

The company's earnings report showed that it is not immune to repercussions from the barrage of privacy scandals and the costs of combating abusive accounts and misinformation that it has faced. Overall, Facebook grew its global users by 11 percent from the same time previous year. "It's the F in FAANG, but what's to say that, 10 years from now, Facebook isn't the next Myspace and something else has taken its place?"

Its gloomy forecast for revenue growth surprised investors, though, and prompted many questions from financial analysts on a conference call with company executives on Wednesday.

Describing the announcements as "bombshells", Baird analysts said the issues were to a large degree "self-inflicted" as Facebook sacrifices its core app monetisation to drive usage. It also is bracing for currency fluctuations as the dollar gets weaker.

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"We own it for its leadership in the tech industry", he said. Monthly active users rose 11 percent to 2.23 billion - below most estimates of 2.25 billion. A decade ago, nearly no one could have imagined that Facebook would have more than 2 billion users, much less that its family of apps - Instagram, WhatsApp and Messenger - would also count members in the billions.

Social media giant, Facebook is losing users, new figures released by the company revealed.

The plunge followed Facebook's warning late Wednesday that its revenue growth will slow down significantly for at least the remainder of the year and that expenses will continue to skyrocket.

In pre-market trading on Thursday, Amazon stock had dipped 1.5 percent, Netflix 1.8 percent, and Alphabet 1 percent. Those investments weighed on the company's profitability in the second quarter and presumably will in coming quarters as well.

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