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BOOM!! Investors Caught With Pants Down As Facebook Plunges 20%, Zuckerberg Lost $16.8 Billion



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Jul 26 2018
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Investors didn’t see this coming. They called it unprecedented. They were caught with their pants down, so much so that they actually said Facebook didn’t need to give such a weak guidance. Do they expect Facebook to lie? Yes, Facebook warned investors of weakening revenue for the second half of the year, and its stock crashes.

 

Facebook missed projections on revenue after struggling with data leaks and fake news scandals. Adding insult to the injury, the global daily users for his quarter also missed the numbers. Facebook said 2.5 billion people used all its products – Facebook, Instagram and WhatsApp – every month. Facebook’s Global DAU (daily active users), however, missed the numbers.

 

Facebook’s global daily active users was 1.47 billion against estimated 1.49 billion. The North American DAU’s was 185 million against projected 185.4 million, while European DAU was 279 million vs. street estimation of 279.4 million. Both regions are important to Facebook. If the growth rate was declining, it means disaster to the social media company.

Facebook Thumbs Down

The company also – surprisingly – missed on advertising revenue projections, reached US$13.04 billion compared with the StreetAccount and FactSet estimate of US$13.16 billion. The stock market didn’t take it when Chief Operating Officer Sheryl Sandberg, during a call with analysts, said there could be more risk for decreased numbers in the Europe in the future.

 

On calls with analysts, Facebook advised that it expected its revenue growth rates to be lower than the year prior, especially in the second half of this year. And it won’t get any better for the subsequently third and fourth quarters – decline to be as much as high single digit percentages. As a result, Facebook share price lost as much as US$150 billion in market capitalization.

 

Wiping 20% of its fortune is just the beginning for the social media giant. Mark Zuckerberg personally saw his wealth tumbled by US$16.8 billion within minutes. If the sell-off continues, billionaire Zuckerberg could be bumped to 6th place, or lower, from the list of the world’s richest man. Already, his gains for the year – totalling US$13.7 billion – are gone.

Facebook Earnings Stock Analysts Grills - Zuckerberg

Daniel Ives, head of technology research at GBH Insights, said – “The Facebook guidance debacle will be a tough pill to swallow for the bulls and weigh on FANG names as this comes on the heels of a Netflix miss as well last week. Facebook’s outlook will cause worries on the Street and that could spread to other names with stock multiples coming under attack.”

 

Gene Munster, a venture capitalist at Loup Ventures, said that Facebook is “entering a new period” where declining user growth will translate to slower revenue growth. He advised investors to stay far away from the stock in the near term. Munster said – “I think you just stay on the sidelines, let the investor base process this and revisit where things are at in two months.”

 

Although Facebook has blamed the drop of daily active users entirely to a data protection and privacy law that took effect in Europe in May known as the General Data Protection Regulation, or GDPR, analysts and investors were not convinced hence chose to play safe and dumped the stock in droves. This is not the first time Facebook stock price was punished.

Facebook - Cambridge Analytica Scandal

In the wake of the Cambridge Analytica scandal, the company stock price was beaten down earlier this year, only to recover. The latest “nightmare guidance” pretty much confirms that the effect of the scandal isn’t over. The declining revenue and user growth means the Bull Run has come to its end, at least until the end of the year.

 

Companies would normally ensure investors that everything is rosy. To hear Chief Financial Officer David Wehner disclosed that the social-media giant expects the revenue-growth slowdown to continue was the last straw that broke the camel’s back. Clearly, analysts who bet and speculated that GDPR might actually benefit Facebook have lost their shirts.

 

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