Economy

Facebook stock falls 24 percent following report of slow user growth

Facebook stock falls 24 percent following report of slow user growth

Facebook Inc.'s scandals are finally hitting the company where it hurts: growth.

David Wehner, Facebook's chief financial officer, said on Wednesday the company's decision to give its users "more choices around data privacy" following the Cambridge Analytica scandal "may have an impact on our revenue growth". It reported second-quarter results on Wednesday afternoon.

"Unlike Netflix, whose quarterly shortfall we saw as temporary, here we see an evolution of the story, albeit a portion of which we expected", said Daniel Salmon, analyst at BMO Capital Markets. "We're starting to see that this quarter", he said.

Facebook has been an omnipresent part of American news for what seems like all of 2018, and rarely with a positive connotation. The last time it missed revenue estimates was the first quarter of 2015.

Almost all of the services have received greater scrutiny since US intelligence agencies in January 2017 revealed that organizations tied to the Russian government had seeded content on the platform to shake up the 2016 USA presidential election.

"It wouldn't be surprising if a couple million very irritated Brits left Facebook", says Brian Wieser, analyst with Pivotal Research.

Facebook shares sink 8% as Q2 revenue and user growth misses analyst estimates
Facebook stock hammered after earnings miss, slow growth forecast

The Menlo Park, California-based company earned $5.1 billion, or $1.74 per share. Sales from United States, Canada and Europe fell $75 million in the second quarter compared with a year ago, while revenue from other markets rose $51 million. User growth - both on a monthly and daily basis - was flat in the USA and the rest of North America, while it declined slightly in Europe. "And it reflects that many people use more than one of our services", he said. The company remains in a dominant position in mobile advertising alongside Alphabet Inc's Google.

The precipitous decline was triggered by Facebook's announcement that revenue gains would lag behind spending growth, meaning lower profits.

"Deceleration such as management guided toward suggests that while the company is still growing at a fast clip, the days of 30 per cent-plus growth are numbered".

The introduction of a new European privacy law has knocked user growth and engagement. The loss of users - the whole reason for the network effect, the reason Facebook can charge advertisers so much money - is what Facebook needs to overcome. But the real question, he said, is whether the company can "continue to do what they are doing in the face of criticism from Wall Street".

Its relationship with Cambridge Analytica, the political data analytics firm that ran data operations for Donald Trump's 2016 presidential election campaign, uncovered violations of data collection and retention policies.

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