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

Forest Practices Board audits Skeena Sawmills

Review and recommendations exercise result of random selection process

Ice Demons returning to CIHL for 2018-2019 season

Central Interior Hockey League will return with five teams after shrinking last season

B.C. declares state of emergency as more than 560 wildfires rage

This is only the fourth state of emergency ever issued during a fire season

Australian firefighters join Telegraph Creek efforts

Regional district extends State of Emergency another week to Aug. 17

UPDATE: 5 injured in plane crash following Abbotsford International Airshow

One in critical condition in incident involving vintage plane

B.C. wildfires 2018: Hazy skies impacting crews in spotting new fires

18,000 people are on an evacuation alert, with 3,000 homes under an evacuation order

Minister optimistic after 2 days of Columbia River Treaty negotiations

Canadian and U.S. officials met in Nelson Wednesday and Thursday to discuss future of the treaty

Man dies in B.C. police cell while awaiting court hearing

An independent investigation is underway after a man died while in Penticton police custody Aug. 16

RCMP appeal for tips, dashcam footage in German tourist shooting west of Calgary

The Durango crashed into the ditch after the shooting near the Goodstoney Rodeo Centre

2 nurses attacked at B.C. psych hospital, union calls for in-unit security

PHSA says that in-unit guards would do more harm than good

Former B.C. optician won’t be jailed for sexually assaulting minor

Kenneth Pilkington sentenced to 24 months’ probation for offence three decades ago

Red Cross now accepting donations for those impacted by B.C. wildfires

The Canadian Red Cross is asking for help now and in the weeks and months ahead.

B.C. program to educate parents reduces ‘shaken baby syndrome’ by 35%

Period of PURPLE Crying was launched nearly a decade ago

B.C. golfer, just 23, scores the rare albatross

Six-million-to-one shot a first for the Terrace club

Most Read