Facebook hit by scandals, misses revenue and user growth estimates

26 July, 2018, 13:25 | Author: Natasha Holloway
  • Conference workers speak in front of a demo booth at Facebook’s annual F8 developer conference in San Jose Calif. in April 2017

The disappointing results came after Facebook has been embroiled in a data scandal affecting millions of users.

The revenue shortfall reflects warnings from Chief Executive Mark Zuckerberg that Facebook's bottom line could be affected by costly measures it is taking to improve safety and security for its 2.23 billion monthly active users.

Shares of Facebook plunged more than 20% in after hours trading, as executives recapped second quarter results that fell short of Wall Street expectations and delivered a financial forecast that seemed to catch investors by surprise.

Sales in the second quarter grew 42 percent, its slowest pace in almost three years, to $13.2 billion compared with $9.3 billion a year ago.

Revenue increased 42 percent to $13.2 billion in the quarter.

The company earned $5.1 billion, or $1.74 per share, up 31% and above analysts' estimates of $1.71.

The problem: weaker-than-expected revenue growth, Facebook's first such miss since 2015.

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Zuckerberg's paper losses come after Facebook revealed mixed earnings and slowing growth during the second quarter of 2018. And the chief financial officer, David Wehner, said revenue growth would substantially decline for the rest of the year, partly because Facebook planned to give people more options with their privacy settings, including letting them limit the kinds of ads they saw. In Europe, things were looking dicey as Facebook (NASDAQ:FB) lost 1 million users, sinking to 376 million monthly active users.

"Fundamental damage to the Facebook platform has been "very contained" in our opinion and is generally better than feared from the white knuckle period a few months ago", Daniel Ives, head of technology research at GBH Insights, said in a note to clients Wednesday. The company's user base flatlined in its biggest market, the USA and Canada, at 185 million daily users, while declining 1 percent in Europe to 279 million daily users. Its number of daily active users, 1.47 billion, was also up 11% year-over-year.

On a conference call to discuss earnings, Zuckerberg said profits would most likely take a further hit because the company planned to spend more on security. "This is a clear inflection point for Zuckerberg & Co.as the company's advertising fortress and MAU metrics still look "well intact" despite the massive potential headwinds caused by Cambridge and the overall privacy worries (GDPR) in Europe although challenges remain".

But there's also been a notable slowdown in user growth.

Separately Wednesday, Facebook general counsel Colin Stretch, who advised the company through a series of probes and investigations into data privacy, said he would be leaving for personal reasons. It owns three other properties with more than 1 billion users: WhatsApp, Messenger and Instagram. Given all the questions about the misuse of the platform, "to explain that there are a couple million people who chose not to continue using Facebook is unsurprising", said Brian Wieser, an analyst at Pivotal Research.

Facebook has said it will increase spending to make investments in video content, and on new bets like artificial intelligence and virtual reality. The company said headcount was 30,275 as of June 30 - an increase of 47 percent year over year.

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