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

Just Posted

Man accused of Brentwood Bay murder appears in court

Alan Chapman tells judge he wants next court appearance to be “as far away as possible”

Langford has ‘no plans’ to make changes to Western Speedway after noise complaints

Flyer passed out to residents voices concerns over racetrack noise

Victoria police hand out Civic Service Awards

June 24 awards include recognition for help on days-long fire, cannabis robbery, volunteer service

Sooke teen seriously injured after fall on field trip

Boy climbed tree when it broke, tumbling down an embankment

VIDEO: Acknowledging skeptics, finance minister vows to build Trans Mountain project

Bill Morneau said he recognizes ‘huge amount of anxiety’ in Calgary over future of oil and gas sector

POLL: Do you support the government’s decision to approve the Trans Mountain pipeline expansion?

The federal government announced Tuesday its approval for the Trans Mountain pipeline… Continue reading

Greater Victoria wanted list for the week of June 18

Greater Victoria Crime Stoppers is seeking the public’s help in locating the… Continue reading

B.C. man faces deportation over father’s honour-killing conviction

Father lied to immigration, was later acquitted of charges in Jassi Sidhu’s murder

RCMP allows officers to grow beards

Members can now wear beards and goatees, as long as they’re neatly groomed

Girl, 10, poisoned by carbon monoxide at B.C. campsite could soon return home

Lucille Beaurain died and daughter Micaela Walton, 10, was rushed to B.C. Children’s Hospital on May 18

30 years later: B.C. woman uses sidewalk chalk to reclaim site of her sexual assault

Vancouver woman didn’t think her powerful story, written in chalk, would ignite such support

Slain friend motivates rookie football player to make it with hometown B.C. Lions

Jaylen Sandhu, stabbed to death in 2014, a source of inspiration for promising RB Jamel Lyles

Sooke council urged to move faster on off-leash dog park plan

Resident questions why five of seven restricted parks are in Sooke

Most Read