Editor’s note: This article was first published in July 2018, as news from 26 July 2018 about Facebook’s Q2 2018 results, and all its figures, including the market cap of $630 billion before and $510 billion after, are from that date. The company has been called Meta since 2021, and the record loss of value has since been surpassed.
In a single day Facebook lost almost 120 billion in market value, finally closing down 18.96%. At one point during the day, after presenting its disappointing results, the social network was down as much as 24%, which amounts to a loss of $150 billion in market capitalisation. That’s the biggest loss of value by a company in the entire history of the US stock market.
Why did Facebook fall so sharply?
We could say that investors didn’t much like the figures Facebook reported for profits and active users (both slowing down), but if we read between the lines of the reports, users’ interest in Facebook could be falling considerably.
In fact, users now use Facebook Stories much more, the posts that disappear 24 hours after being uploaded. And that generates less advertising money for Facebook than traditional posts on the news feed.
But is this drop an opportunity to buy Facebook shares?
The fact is that Facebook has returned 472% since its IPO. A 120 billion intraday loss might sound outrageous, but we’re talking about a company that had a market capitalisation of $630 billion and that is still worth $510 billion after the fall.
These huge figures also show that expectations for the social network’s growth in users and profits were too high to justify its lofty valuation, and after these results, let’s just say the company may not have hit bottom yet.
Facebook still faces other problems
Facebook’s chief financial officer has warned that revenue growth is expected to slow and operating margins to fall. Even beyond 2018, looking ahead to 2019, things could get somewhat worse for the social network.
First of all, Facebook faces a currency problem: the fall in the dollar will reduce the dollar value of its foreign revenue.
As we said, users’ shift towards Stories means the company doesn’t earn as much from advertising as it can from other features of its site.
Then there are the privacy problems, where the storm for Facebook may not be over yet. Facebook is also offering users the option to opt out of data collection, which could also mean less advertising revenue.
And finally there’s the proposal by some investors to remove Mark Zuckerberg as chairman. In other words, buying Facebook shares right now wouldn’t be the most sensible move.
Summary of the second-quarter earnings report
Second-quarter revenue came in at $13.23 billion, missing expectations by around $70 million. Average monthly active users for the period reached 2.23 billion, about 20 million fewer than expected.
And worst of all, this slowdown in the company’s growth is expected to continue throughout 2018 and 2019.
Are we witnessing the beginning of the end of users’ interest in Facebook, or are we simply seeing a correction in its value due to a passing rough patch at a company that will find a way to keep growing? That’s the question an investor needs to answer before investing in Facebook.
See also: Is Facebook listening to your conversations with friends through your phone’s microphone?
Featured image: ajay_suresh, CC BY 2.0, via Flickr.
