Published: Sat, July 28, 2018
Money | By Hannah Jacobs

Facebook is sued after stock plunge 'shocked' market

Facebook is sued after stock plunge 'shocked' market

Traders are bracing for a decline in tech stocks when the markets open Thursday. The slide is the largest decline market capitalization in history, exceeding Intel's $91 billion single-day loss in September 2000, according to Bloomberg data.

Shares tumbled as much as 20 per cent in NY on Thursday as sales and user growth disappointed investors.

Facebook's daily active users for the second quarter of 2018 were effectively flat in the USA sequentially, and even declined in Europe compared with Q1 - marking the first time the company has seen such a decline in recent quarters.

Facebook stock sank after it warned investors that it saw slower revenue growth ahead, and that its user base and revenue grew more slowly than expected in the second quarter.

The sudden drop also amounted to a test of investor faith in the class of giant, technology-focused stocks that have carried the market for much of the year. When Facebook warned of slower growth it tipped the balance, sending the stock tumbling. The company has been hiring more people and concentrating resources to improve privacy and data security, and increase policing of the site to tackle misinformation and election interference. Their median target price is $US219.30. "In our view, the sell-off is overdone and largely unwarranted".

But it stayed relatively steady after that, at least until the call started and David Wehner, Facebook's chief financial officer, began discussing the company's financial outlook.

"I think many investors are having a hard time reconciling that deceleration", Brent Thill, an analyst at Jefferies LLC, told Facebook executives, asking for a little more clarity on the reasoning.

Mark Zuckerberg has lost around £13 billion of his personal fortune after Facebook suffered its worst ever day on the stock market.

Facebook's second-quarter results were the first sign that a new European privacy law and a string of privacy scandals involving Cambridge Analytica and other app developers are hitting the company's business. However, average revenue per user in the region rose despite the lack of growth. Like Facebook, Instagram depends on ads to generate revenue, and Stories is supposed to help sell more ads.

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. Yet both categories are facing headwinds.

In Q2, Facebook's total revenue growth rate dropped about 7 percentage points compared with Q1.

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