Facebook shares cratered 18.4 per cent in early trading on Thursday after the social network reported a slight miss in its earnings call on Wednesday and warned of slower growth going forward as scrutiny over privacy affects both costs and revenue.
The share decline could wipe out over US$100 billion for Facebook investors, with Mark Zuckerberg’s fortune set to plunge by around US$15 billion, according to media reports. Zuckerberg’s net worth had tumbled from US$82.4 billion to US$63.6 billion on Wednesday evening, when Facebook shares were down 16 per cent, Forbes reported.
That caused Zuckerberg’s rankings among the world’s richest people to drop from fourth to eighth place in a matter of hours, a “record drop,” according to Forbes.
Facebook shares started to dip after the company revealed it had narrowly missed its second quarter revenue target, but the plunge began after executives said that profit margins would plummet for several years due to the costs of improving privacy safeguards and slowing usage in the biggest advertising markets.
The second-quarter results were the first sign that a new European privacy law and a succession of privacy scandals involving Cambridge Analytica and other app developers have bit into Facebook‘s business. The company further warned that the toll would not be offset by revenue growth from emerging markets and Facebook‘s Instagram app, which has been more immune from privacy concerns.
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If the share drop holds on Thursday, it would be Facebook‘s largest single-day decline, topping a 12 per cent decrease in July 2012.
Facebook had cautioned investors to expect a big jump in second-quarter costs because of efforts to address concerns about poor handling of users’ privacy and to better monitor what users post. Total expenses in the second quarter surged to US$7.4 billion, up 50 per cent compared with a year ago.
Facebook forecast similar increases for the second half of the year, also citing spending on video content and marketing.
Its gloomy forecast for revenue growth surprised investors, though, and prompted many questions from financial analysts on a conference call with company executives on Wednesday.
The General Data Protection Regulation (GDPR) in the European Union also will cause a revenue drop. The new privacy law forced several changes to Facebook‘s privacy terms and sign-up process, leading a minority of users to opt for non-personalized ads, which tend to generate less revenue.
Facebook‘s daily active users in Europe declined by 3 million amid the new regulation. Worldwide daily user growth for Facebook‘s namesake service slid for its sixth straight quarter, bringing it to nearly 1.5 billion users in the second quarter.
The company said for the first time that more than 2.5 billion users interact with at least one of its apps each month, but analysts have said many of them are spending more time with Messenger, WhatsApp and Instagram. Commercialization of those apps is nascent.
Nearly all social media services have received greater scrutiny since U.S. intelligence agencies in January 2017 revealed that organizations tied to the Russian government had seeded content on the platform to shake up the 2016 U.S. presidential election.
– With files from Reuters