Facebook loses $120 billion in market cap after awful Q2 earnings
Facebook’s share
price fell over 20 percent in after-hours trading yesterday
after the company announced its slowest-ever user growth rate and a
scary warning that its revenue growth would rapidly decelerate.
Before today’s brutal Q2 earnings, Facebook’s share price closed
today at $217.50 – a record high — but fell to around $172 after
the earnings call. That’s a market cap drop of roughly $123
billion. In two hours, Facebook lost more value than most startups
and even public companies are ever worth.
So
why did Facebook’s share price sink like a stone? There are five
big reasons:
Slowest-Ever
User Growth Rate –
Facebook’s monthly user count grew just 1.54, compared to 3.14 last
quarter. Daily active users grew even slower at 1.44 percent,
compared to 3.42 percent last quarter. For reference, 2.18 percent
was its previous slowest DAU growth rate back in Q4 2017. Suddenly
hitting this wall could limit Facebook’s total user count over the
long-run, and its revenue with it. Facebook tried to distract from
these facts by announcing a new “family of apps audience” metric
of 2.5 billion people using at least one of its apps, which will hide
the shift of users from Facebook to Instagram and
WhatsApp.
User
Count Shrank In Europe, Flat In US & Canada –
Facebook saw its first-ever decline in monthly user count in Europe,
from 377 million to 376 million. It got stuck at 241 million in the
US & Canada after similarly pausing at 239 million in Q4 2017.
Those are Facebook’s two most lucrative markets, with it earning
$25.91 per user in North America and $8.76 in Europe. If those
markets stall, even swift growth in the Rest Of World region where it
earns just $1.91 per user won’t save it.
Decelerating
Revenue Growth –
Facebook’s revenue grew a remarkable 42 percent year-over-year this
quarter. But CFO David Wehner warned that metric would decelerate by
high single-digit percentage per quarter over the coming quarters.
Wehner said a combination of currency headwinds, new privacy
controls, and new experiences like Stories will contribute to the
deceleration. This news is what caused Facebook’s share price to
drop from -7 percent to -20 percent.
Privacy
And Well-Being –
Q2 saw the debut of Europe’s GDPR that forced Facebook to change
its privacy policies and get users to agree to how it collects data
about them. Wehner blamed GDPR for Facebook loss of users in Europe.
That law and Facebook’s Cambridge Analytica scandal led the company
to have to improve its privacy controls. These could make it tougher
for Facebook to target people with ads or show their content to more
people.
Source: techcrunch.com
Good times truly don’t last forever.
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