Facebook faces day of reckoning on Wall Street

Shares plunged more than 19 per cent before trading, equating to about $17 billion in net worth

Facebook’s user base and revenue grew more slowly than expected in the second quarter of 2018 as the company grappled with privacy issues, sending its stock tumbling after hours. (AP Photo/Richard Drew, File)

There’s a scratch in Facebook’s Teflon coating.

The social network’s user base and revenue grew more slowly than expected in the second quarter as the company grappled with privacy issues, sending its stock tumbling after hours.

The company also warned that it expects revenue growth to decelerate in the next couple of quarters as it promotes new, and for now less profitable, products— such as its Stories disappearing message feature. It is also allowing users to make “more choices” around data privacy amid public outcry and regulatory pressures.

The earnings covered the company’s first full quarter since the Cambridge Analytica privacy scandal erupted. But analysts attributed the user growth shortfall largely to European privacy rules that went into effect in May, not to the furor over the political consulting firm with ties to President Donald Trump, which improperly accessed the data of tens millions of Facebook users.

With an hour before trading began Thursday, shares had plunged more than 19 per cent, plucking about $17 billion in net worth out of the pocket of Facebook founder Mark Zuckerberg.

Still, the results suggest that Facebook may have weathered the scandal without major harm to its business, even if its public image has taken a hit. While revenue fell short of Wall Street estimates, it did so by only about 1 per cent; profits, meanwhile exceeded forecasts.

READ MORE: CEO Zuckerberg apologizes for Facebook’s privacy failures

But Facebook continues to grapple with big existential questions, ranging from its users’ privacy to tech addiction to how it deals with fake news and misinformation, hate speech and extremism on its service.

At times, it has seemed as though Facebook can’t quite decide where its values really lie. For instance, it continues to straddle the line between policing what users say and remaining a neutral platform in an increasingly divided world, and between protecting privacy while collecting as much information on its users as possible.

Facebook had 2.23 billion monthly users as of June 30, up 11 per cent from a year earlier. Analysts were expecting 2.25 billion, according to FactSet. User growth — both on a monthly and daily basis — was flat in the U.S. and the rest of North America, while it declined slightly in Europe.

Facebook has largely saturated in the U.S. and Western European markets, and is now looking to countries such as Brazil, India and Indonesia for new users. Revenue from these regions, however, is far below what Facebook rakes in from the U.S. and Europe.

The company earned $5.1 billion, or $1.74 per share, up 31 per cent and above analysts’ estimates of $1.71.

But revenue — up 42 per cent to $13.23 billion— was slightly below the $13.34 that Wall Street was expecting.

Facebook said the European privacy rules, called General Data Protection Regulation, or GDPR, did not have a big effect on the quarter’s revenue, but also noted that they were only in effect for about a month before the quarter ended.

Over the long term, GDPR may end up favouring Facebook and other large companies that have the resources to adapt to new requirements. They could similarly disadvantage smaller, lesser known companies that don’t have the resources to comply and which could face big fines if they don’t.

One bright spot for Facebook has been Instagram, the photo-sharing app it bought for $1 billion in 2012. Instagram now has more than 1 billion users, and analysts expect it to be a model for how Facebook moulds its other big app purchase, WhatsApp, into a lucrative business. So far, WhatsApp doesn’t show ads, and its founders Jan Koum and Brian Acton left Facebook amid disagreements over advertising and other issues.

Barbara Ortutay, The Associated Press

Like us on Facebook and follow us on Twitter

Just Posted

Fraser Valley Express doubles weekend and holiday bus service

Four new round trips to be added, starting Sept. 4

Mother charged with homicide of Langley seven-year-old

Aaliyah Rosa’s 36-year-old mother charged with second degree murder: IHIT

VIDEO: Child airlifted to hospital after crash in rural Langley

Jaws of life were used to cut off the roof of a car and free its occupants from a two-car accident.

LETTER: Medical care in Langley and beyond deplorable

The shortage of family doctors shouldn’t exist. Who’s really to blame?

Langley netminder makes ‘unbelievable’ saves in draw against Seattle

Trinity Western University women’s soccer team battled to a 0-0 draw to Seattle, while boys fell 2-0.

VIDEO: Lower Mainland air quality to hit ‘extreme risk’

Smoke is pouring in from the interior B.C. and wildfires down in the U.S.

PHOTOS: Olympian Patrick Chan helps B.C.’s ‘SuperChefs’ celebrate 10th anniversary

Former figure skater among those at event Friday in Surrey

Smaller B.C. bus service prepares to replace Greyhound

Kootenay-to-Okanagan run would require online reservations

Police ID Surrey man killed in fight at McDonald’s

Investigators ask anyone who knew Lakhwinder Singh Bal to speak with police, to help determine timeline ahead of ‘homicide’

Despite threats, Soldiers of Odin a no show at B.C. tent city

Nanaimo’s Discontent City held a counter rally on Sunday

5 to start your day

A man killed in Surrey, smoke continues to hang over the Lower Mainland and more

Trudeau formally announces he’ll run again in 2019

PM Justin Trudeau gears up to run in next year’s election

Smoke from B.C. wildfires prompts air quality advisories across Western Canada

A massive cloud of smoke hangs over B.C. and Alberta due to wildfires

Pope on sex abuse: “We showed no care for the little ones”

In response to the Pennsylvania report, Francis labeled the misconduct “crimes”

Most Read