Facebook stock hammered after earnings miss, slow growth forecast

26 July, 2018, 10:43 | Author: Lora Ball
  • Yahoo Finance

Facebook stock price tumbled more than 20% in after-hours trading, after the company's chief financial officer said revenue growth would "continue to decelerate in the second half of 2018" as the company increased its investment in security and privacy.

The update showed the key metric of monthly active users rose 11 per cent to 2.23 billion, below most estimates of 2.25 billion, while daily active users grew a weaker-than-expected 11 per cent to 1.47 billion. The news sent Facebook shares crashing some 20 percent, which suggests reality may be catching up to the social networking giant - and the flap over fake news and related scandals may be starting to take a toll.

"Despite facing important challenges, our community and business are off to a strong start in 2018", said Mark Zuckerberg, Facebook's founder and CEO. The social media company posted revenue of $13.23 billion in the period, also falling short of Street forecasts.

The Menlo Park, California-based company reported net income of $5.11 billion, or $1.74 a share, compared with analysts' average estimate of $1.71 a share, according to data compiled by Bloomberg.

Revenue increased 4% to $13.2 billion in the quarter. Both numbers were just shy of analyst expectations, which had put revenue at $13.36 billion and daily active users at 1.49 billion. Facebook reported its slowest growth rate ever, with 2.23 billion people logging in at least once a month in June, below the 2.25 billion analysts expected.

It's a rare moment of weakness for Facebook (FB) at a time when investors are scrutinizing the company carefully to determine whether there is any lingering damage from months of bad press, user outrage and regulatory scrutiny.

In the same quarter a year ago, Facebook rang up $1.32 in EPS on revenue of $9.32 billion.

More news: Rep: Pop star Demi Lovato awake and recovering with family

The General Data Protection Regulation (GDPR) in the European Union also will cause a revenue drop. Facebook saw a decline in Europe to 279 million daily users.

"The market was expecting a lot more", Wieser says. In North America, an effort to get all political advertisers to verify their identities may have halted some purchases as the company worked through its broad definition of what's considered "political".

The social network beat the predicted $1.72 earnings per share, reporting $1.74. Instagram now has more than 1 billion users, and analysts expect it to be a model for how Facebook molds its other big app purchase, WhatsApp, into a lucrative business.

"There is never a "right time" for a transition like this, but the team and the company boast incredible talent and will navigate this well", Stretch said on his Facebook page. Earlier Wednesday, the stock reached a intraday high for the fourth session in a row before closing at $217.50, from 42% last quarter.

Facebook's operating margin fell to 44 per cent in the second quarter from 47 per cent a year ago.

Executives warned that revenue growth would slow and expenses would rise. The company's user numbers also came below expectations, with the growth in monthly users stalled in the U.S. and down slightly in Europe.

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