San Francisco: Facebook, the social networking giant, faced another tremor as its shares plunged by 21 per cent which raised concerns for the company as it is still recovering from the impact of data protection scandals and investigations.
The 21 per cent downfall in the shares of Facebook wiped out almost $130 billion in market value.
Notably, the Facebook’s profit moved up by 31 per cent as initial selling showed growth and user growth also came up short of expectations. The second quarter profit was $5.1 billion and revenue increased by 42 per cent to $13.2 billion.
David Wehner, Chief Financial Officer, earlier warned about the weaker outlook in the coming quarter in a call with analyst.
Wehner said, “Revenue growth ‘decelerated’ in the second quarter and will decline ‘by high single digit percentages’. We are also giving people who use our services more choices around data privacy which may have an impact on our revenue growth.”
Commenting on the deceleration, Brent Thill, Analyst, Jefferies & Co., who was also on call with Wehner said that it is really difficult for most of the investors to reconcile the deceleration. He said that it looks like that the magnitude is beyond anything we have seen.
Facebook’s Investment in Safety to Impact its Profitability
Mark Zuckerberg, Chief Executive of Facebook informed the call that huge investments are being made in ‘safety, security and privacy’. This was done after it witnessed a setback on the issues of manipulation of the platform to spread misinformation and the hijacking of user data.
While addressing the conference call on quarterly results, he said, “We’re investing so much in security that it will start to impact our profitability, we’re starting to see that this quarter.” He further added that the company is operating on the long term plans, not for the next quarter.
According to the news published on AFP, Zuckerberg has said he did not expect a meaningful impact from the uproar over data hijacked by political consulting firm Cambridge Analytica, but the last quarter’s figures suggested some cooling.
There was an increase in the monthly active users which went up to 2.23 billion (11 per cent) which is though below the estimates of 2.25 billion, while the daily active users also increased by 11 per cent to 4.7 billion which was again less than expected.
It was informed by Zuckerberg that there was a loss of almost one million users in Europe following the implementation of new EU data protections rules, but he also said that since many Europeans ‘want to use context from ads’ it means that they are giving their permission to collect data for advertising purposes.
Notably, the online advertising generates $13 billion revenue for Facebook out of total $13.2 billion. The California social network along with Silicon Valley rival Google dominates this sector.
Though there was a steep downfall in the shares of Facebook following the Cambridge Analytica scandal which came into the light earlier this year but they also witnessed a sharp increase and reached the record height this month.
It is expected that the social media giant will hold 18 per cent share of the $273.29 billion worldwide digital ad market which is second highest after Google’s 31 per cent as per the estimates given by research firm eMarketer.
(Inputs from AFP)