Published: Fri, July 27, 2018
Markets | By Terence Owen

'Mind-blowing plunge': Facebook value drops by $100 billion+

'Mind-blowing plunge': Facebook value drops by $100 billion+

Shares in Facebook tumbled 19 per cent on Thursday on the United States' Nasdaq exchange to close at US$176.26 ($259.80) after sales and growth forecasts reported a day earlier, after normal trading closed, disappointed investors. It is among the biggest single-day falls in USA stock market history.

Facebook also missed the revenue projections of most analysts for the second quarter. The company's user base flatlined in its biggest market, the US and Canada, at 185 million daily users, while declining 1 percent in Europe to 279 million daily users.

New European privacy rules, inspired in part by Facebook's relentless mining of its own users' data, are starting to hamper the company's advertising business. $130 billion had been wiped off of Facebook's market cap as a result of the stock's plunge.

Eighty percent of the discussions were bullish heading into earnings, the firm said in an email to Business Insider, adding that "investors seem unphased after seeing Facebook's ability to weather the Cambridge Analytica news".

After the Cambridge Analytica data scandal, Facebook suspended Boston-based data analytics company Crimson Hexagon over concerns that it harvested users' data.

CEO Mark Zuckerberg said that Facebook's profitability will be affected as it looks to invest more in security and privacy. "The reality was Facebook was going to hit a growth wall in new users at some point, but I don't think anyone thought it would happen so soon", he wrote in a blog post.

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As well as investing in privacy centres, previous reports indicate that Facebook has spent at least $30m in the U.S. on TV commercials to assure users it's fixing issues like "spam, clickbait, fake news and data misuse".

Normally, a drop that steep in a company so high profile would bring out bargain hunters, investors who see the opportunity for a quick profit in a popular stock. The share price was on its way to the biggest single-day drop in the company's history.

"The company has a track record of resetting revenue growth and expense expectations only to turn around and exceed those expectations the following quarter", said Gene Munster of Loup Ventures. The Stories format is showing promise, and Facebook still has strong monetization potential across several areas, like IGTV - where it hasn't even really started yet.

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.

Of 47 analysts covering Facebook, 43 still rate the stock as "buy", two rate it "hold" and only two rate it "sell".

The number of monthly users - a key indicator of Facebook's popularity - rose slightly, to 2.23 billion from 2.2 billion last quarter.

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