Facebook faces day of reckoning on Wall Street

Shares plunged more than 19 per cent before trading, equating to about $17 billion in net worth

Facebook’s user base and revenue grew more slowly than expected in the second quarter of 2018 as the company grappled with privacy issues, sending its stock tumbling after hours. (AP Photo/Richard Drew, File)

There’s a scratch in Facebook’s Teflon coating.

The social network’s user base and revenue grew more slowly than expected in the second quarter as the company grappled with privacy issues, sending its stock tumbling after hours.

The company also warned that it expects revenue growth to decelerate in the next couple of quarters as it promotes new, and for now less profitable, products— such as its Stories disappearing message feature. It is also allowing users to make “more choices” around data privacy amid public outcry and regulatory pressures.

The earnings covered the company’s first full quarter since the Cambridge Analytica privacy scandal erupted. But analysts attributed the user growth shortfall largely to European privacy rules that went into effect in May, not to the furor over the political consulting firm with ties to President Donald Trump, which improperly accessed the data of tens millions of Facebook users.

With an hour before trading began Thursday, shares had plunged more than 19 per cent, plucking about $17 billion in net worth out of the pocket of Facebook founder Mark Zuckerberg.

Still, the results suggest that Facebook may have weathered the scandal without major harm to its business, even if its public image has taken a hit. While revenue fell short of Wall Street estimates, it did so by only about 1 per cent; profits, meanwhile exceeded forecasts.

READ MORE: CEO Zuckerberg apologizes for Facebook’s privacy failures

But Facebook continues to grapple with big existential questions, ranging from its users’ privacy to tech addiction to how it deals with fake news and misinformation, hate speech and extremism on its service.

At times, it has seemed as though Facebook can’t quite decide where its values really lie. For instance, it continues to straddle the line between policing what users say and remaining a neutral platform in an increasingly divided world, and between protecting privacy while collecting as much information on its users as possible.

Facebook had 2.23 billion monthly users as of June 30, up 11 per cent from a year earlier. Analysts were expecting 2.25 billion, according to FactSet. User growth — both on a monthly and daily basis — was flat in the U.S. and the rest of North America, while it declined slightly in Europe.

Facebook has largely saturated in the U.S. and Western European markets, and is now looking to countries such as Brazil, India and Indonesia for new users. Revenue from these regions, however, is far below what Facebook rakes in from the U.S. and Europe.

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

But revenue — up 42 per cent to $13.23 billion— was slightly below the $13.34 that Wall Street was expecting.

Facebook said the European privacy rules, called General Data Protection Regulation, or GDPR, did not have a big effect on the quarter’s revenue, but also noted that they were only in effect for about a month before the quarter ended.

Over the long term, GDPR may end up favouring Facebook and other large companies that have the resources to adapt to new requirements. They could similarly disadvantage smaller, lesser known companies that don’t have the resources to comply and which could face big fines if they don’t.

One bright spot for Facebook has been Instagram, the photo-sharing app it bought for $1 billion in 2012. Instagram now has more than 1 billion users, and analysts expect it to be a model for how Facebook moulds its other big app purchase, WhatsApp, into a lucrative business. So far, WhatsApp doesn’t show ads, and its founders Jan Koum and Brian Acton left Facebook amid disagreements over advertising and other issues.

Barbara Ortutay, The Associated Press

Like us on Facebook and follow us on Twitter

Get local stories you won't find anywhere else right to your inbox.
Sign up here

Just Posted

UPDATED: Young deckhands backed out of fatal Arctic Fox II trip just before fishboat departed

Inexperienced twin brothers had ‘gut feeling’ and bailed before going to open ocean

Police investigating alleged assault on Oak Bay Avenue

Staff at Oak Bay Home Hardware say one person was taken to hospital

Oak Bay neighbourhoods rocked by blasting activity

Oak Bay seeks new rock blasting bylaw regarding ‘continuous’ noise

Greater Victoria hardly making a dent in greenhouse gas emissions target

One-per-cent drop from 2007 to 2018 a far cry from the 33-per-cent goal for 2020

VIDEO: Seal pup and mom play and ‘kiss’ in Oak Bay Marina

BRNKL seal cam captures harbour seal growing up in busy harbour

B.C. records new COVID-19 death, 85 more cases; Horgan calls on celebrity help

This brings the total number of active confirmed cases to 531 across the province

Horvat scores 2 as Vancouver Canucks beat Blues 5-2 in NHL playoff opener

Game 2 in best-of-seven series goes Friday night

Old-growth forest defenders in Campbell River call for B.C. forest minister’s resignation

Protestors outside North Island MLA’s office ask government to stop old-growth logging

Teachers to get 2 extra days to prepare for students’ return, now set for Sept. 10

Students will first start with orientation and learn rules of COVID-19 classroom policies

High-volume littering at Cape Scott draws ire from hiking groups

Popular Vancouver Island hiking spot not closing, but frustration about crowding grows

SFU to drop ‘Clan’ varsity team name

The ‘Clan’ name is shortened from ‘Clansmen,’ and was introduced roughly 55 years ago

New Tory leader must build a strong team in Commons and for the campaign: Scheer

Scheer marked his final day in the House of Commons today as leader of the Opposition

B.C. to hire 500 more COVID-19 contact tracers ahead of fall

Contract tracers add an ‘extra layer’ in the fight against the novel coronavirus

Feds commit $305M in additional funds for Indigenous communities during COVID-19

Money can be used to battle food insecurity and support children and mental health

Most Read