Tech firms prepare for share plunges as Facebook loses $128 billion

28 July, 2018, 19:54 | Author: Gerard Cortez
  • Facebook in palm

The big picture: After missing predicted targets in their most recent quarterly reports, both Facebook and Netflix saw shares tumble.

Facebook had already warned investors ahead of the market opening that they should expect a significant decline in growth rate, with users in Europe falling from 282 million to 279 million.

That growth trouble, in turn, sent Facebook's share price down over 20 percent in after-hours trading.

The loss of stock value bumped Zuckerberg from number four down to number six - six! - on Forbes' ranking of the World's Billionaires, behind Spanish fashion magnate Amancio Ortega and Warren Buffett.

Of 47 analysts covering Facebook, 43 rate the stock as "buy", two rate it "hold" and two rate it "sell". Worth noting: It costs nowhere near that much to protect the CEO of the most valuable company in the world nor the tech CEO who's also the wealthiest person in the world.

David Wehner, Facebook's chief financial officer, made a series of bombshell announcements yesterday when he warned markets the revenue slowdown will continue for some time.

Meanwhile, other observers think the technology expert may be in over his head when it comes to the many other aspects of his global business.

The revenue guidance from the company was "unprecedented", said Gene Munster, an analyst at Loup Ventures, in a note to investors.

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Facebook also surprisingly missed on advertising revenue projections, reached $13.04 billion compared with the StreetAccount and FactSet estimate of $13.16 billion.

Facebook has also faced public image problems because of the way Russian Federation used the site to try to influence the 2016 USA presidential election. A string of scandals involving how the company users customers' data and how it polices its platform and filters out objectionable content have put it under harsh public scrutiny. 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-personalised ads, which tend to generate less revenue.

But Wehner said the product has "lower levels of monetization", while adding that the company plans to invest in growing the service. These tech giants were viewed as having almost unassailable revenue streams that could deliver profit growth regardless of economic conditions.

Facebook Inc.'s scandals are finally hitting the company where it hurts: growth.

Investors closely watch operating margins because they serve as an important metric for profitability. Amazon shares, up 55 percent this year versus 6 percent for the S&P 500 as of Thursday's close, trade at a premium, too.

So is it time to unfriend Facebook? Some analysts argue that its long-term outlook is favorable, with RBC Capital Markets' Mark Mahaney writing that the sell-off may represent "one of the best entry points you can get on FB", according to Bloomberg.

And in the view of BTIG analyst Rich Greenfield, Facebook is making an investment that will pay off down the road. A decade ago, nearly no one could have imagined that Facebook would have more than 2 billion users, much less that its family of apps - Instagram, WhatsApp and Messenger - would also count members in the billions.

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