Why Facebook earnings report caused massive drop in stock value

Facebook on Thursday published its earnings report with forecast of decline in revenue.


The market development triggered a significant fall of company’s stocks value and investors are reportedly scared of a slow-down in the social network giant’s revenue growth.

Facebook shares dropped over 19% in trading on Thursday, a market trend which has been the worst since nearly three months.

Mark Zuckerberg (Facebook CEO) had his net worth plummet to around $16bn whereas the company lost over $110 billion in market value, according to the real-time net worth tracker by Forbes.

Among other internet and tech stocks affected in the market drop are Twitter and Snap. Meanwhile, Zuckerberg’s net worth currently stands at some $67bn.

Facebook’s has its market cap at $629.6 bn after Wednesday’s trading but by Thursday, at 10:30 a.m. ET, the market value fell to around $503 billion.

According to reports, daily active users of Facebook for the second quarter of 2018 effectively fell flat in the U.S. sequentially, and was even lower in Europe compared with Q1. This was the first time Facebook has witnessed such a decline in recent quarters.

Facebook CFO David Wehner told investors that revenue growth would decline significantly over the next few quarters, also warning the company that its operating margin would drop from 44 percent in Q2 to the mid-30 percent range over a 2-year period.

Pivotal Research analyst Brian Wieser wrote in a research note that the big story from the earnings report was the forecast that revenue will decelerate in the second half of 2018.

“While the company is still growing at a fast clip, the days of 30%+ [revenue] growth are numbered,” Brian wrote.

Meanwhile, Facebook said that in Q2, its total revenue growth rate dropped about 7 percentage points compared with Q1.

“Our total revenue growth rates will continue to decelerate in the second half of 2018,” Wehner said, “and we expect our revenue growth rates to decline by high-single digit percentages from prior quarters sequentially in both Q3 and Q4.”

The company’s CFO also pointed out that the factors contributing to Facebook’s slowing sales growth include currency-exchange rates, compared with “the tailwinds we have experienced over the last several quarters.”

He added that the company expects to invest in products like Stories “that currently have lower levels of monetization,” while the introduction of new controls for users to limit their data-sharing with Facebook “may have an impact on our revenue growth.”