Published: Thu, July 26, 2018
Markets | By Erika Turner

Facebook's shares tumble as growth disappoints

Facebook's shares tumble as growth disappoints

Facebook (NASDAQ:FB) managed to reached 2.23 billion monthly users but these numbers show that growth topped just 1.54 percent, which is much slower than Q1's 3.14 percent around where its growth rate has hovered for many years.

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.

The company earned $5.1 billion, or $1.74 per share, up 31 percent and above analysts' estimates of $1.71.

Ad sales in the second quarter rose 42 per cent to US$13.04 billion but costs, bolstered by moves to improve content and security after the data scandal, rose 50 percent from a year earlier to US$7.37 billion.

Now Facebook's market value sits at $483 billion, with shares falling about 24% in after hours trading. The quarter marked the first time Facebook had missed analysts' revenue projections since 2015.

A data privacy scandal involving the political consulting firm Cambridge Analytica and misinformation on WhatsApp contributing to mob killings in India have added to the pressure on Facebook to re-evaluate how its services maintain security and decorum.

The new General Data Protection Regulation (GDPR) in the European Union forced several changes to Facebook's privacy terms and sign-up process. Its total user count represents an 11 percent increase over the year-ago period.

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"While this has been the darkest chapter in Facebook's 14-year history, based on our recent user and advertising checks we believe the company has seen minimal speed bumps in 2Q around advertising strength and user engagement trends which is a healthy sign looking ahead in our opinion for Facebook (and its investors)", Ives said in a note to clients this week.

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.

The social media site had a rough hump day as the company was below the mark with its sales and its global daily active users during its second quarter of fiscal 2018, due in part to the slew of data leaks and fake news fiascos that plagued the company during the period.

Still, 4C saw more ad revenue pumping through its platform going into Facebook, Goldman says, especially into its Instagram platform.

Facebook has said it will increase spending to make investments in video content, and on new bets like artificial intelligence and virtual reality.

The threat of additional privacy regulatory setbacks remains a concern, according to analysts.

Facebook has shown that it can not sail forever forward while facing various storms, including Cambridge Analytica and the Russian government's use of the social media platform to sow divisions amongst Americans during the 2016 presidential campaign. Instagram last month reported it had hit 1 billion monthly users for the first time, up from 800 million in September.

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