Facebook Inc. was reported to have lost about $120 bn in market capitalisation, after its earnings reports missed expectations on revenue after the market close—and showed slowing user growth. The weak guidance was also a source of concern for investors.
The stock closed down 19% Thursday to $176.26, which means that investors erased the entirety of the company’s 2018 gains. Its market capitalization fell down from $630 bn on Wednesday, to $510 bn by end of trading Thursday. This was the worst single-session decline in the company’s history since it went public in 2012.
Facebook’s stock has been recovering from a decline earlier this year in the wake of the Cambridge Analytica scandal — but declining revenue and user growth seemed to end that streak. The stock dropped about 7% immediately after the earnings report was released – then it plummeted to a loss of more than 20% during a conference call with analysts.
Close to 34 million shares changed hands in Wednesday’s extended session. This was well above the average volume of 17 million shares for a regular trading session over the previous month.
The company had reported $5.12 bn in net income for the quarter, which amounts to $1.74 a share, up from $3.89 bn or $1.32 a share in the year-ago period. The bottom-line beat was above analysts’ average estimates of $1.71 a share.
However, Profits were not the only thing that scared investors. The company had recorded sales of $13.04 billion, a 41.9% increase from a year ago — but that was lower than analyst estimates and previous growth rates. User growth was flat in the U.S. and Canada, and declined in Europe as well, from the previous quarter.
The stock truly fell off the cliff when Chief Financial Officer David Wehner disclosed the company’s revenue-growth slowdown: “Our total revenue-growth rates will continue to decelerate in the second half of 2018, and we expect our revenue-growth rates to decline by high-single-digit percentages from prior quarters sequentially in both Q3 and Q4,” he said on the conference call. Wehner also added that Facebook is still expecting expenses to grow 50% to 60% from last year.
Even though Ives says that the quarter was far from disastrous — it was decent with a few rough patches — he was fully expecting investors to continue punishing the stock in the near-term.
“The quarter itself had geographic soft spots and disappointed the bulls,” Ives said. “There are a lot of natural headwinds [Facebook is] seeing, this is going to be one quarter that puts the stock in the penalty box for a while until they can prove that advertising tailwinds and user growth are back on the right track.” he added.
Facebook’s numbers in Europe declined in large part due to the European Union’s General Data Protection Regulation, which went into effect during the quarter.
Despite all this, the company has not yet seen a loss of support from advertisers. Less subject to the quarterly demands of investores, they still see it as an invaluable platform.
“There’s still unprecedented scale, the best ad tech in the industry,” said PMX Agency Facebook lead Jesse Math. “In the short term, Facebook is still viable. Really this quarter and this year it’s focused on a long-term strategy, everything they do is focused on making Facebook a place where users want to be. All the changes it’s been making to the platform, the algorithms, the tools advertisers use are for the long term.”
Facebook was not the only social media giant with plummeting stock returns. The companys loss of stock value also affected its rivals Twitter and Snapchat also posed drops of -20.54% and -4.04% respectively. Initially Snap went down in single digits, but rebounded and closed down 0.2% at $13.37. Twitter closed down 2.9% at $42.94.
Facebook stock is now flat this year, as the S&P 500 index SPX, -0.66% has risen 5.5%.