Published: Thu, July 26, 2018
Markets | By Otis Pena

Facebook's shares tumble as growth disappoints

Facebook's shares tumble as growth disappoints

It reported 2.23 billion monthly active users and 1.47 billion daily active users, which were both up 11 percent year-over-year but narrowly missed estimates.

Facebook stock price tumbled more than 20% in after-hours trading, after the company's chief financial officer said revenue growth would "continue to decelerate in the second half of 2018" as the company increased its investment in security and privacy.

The revenue shortfall reflects warnings from Chief Executive Mark Zuckerberg that Facebook's bottom line could be affected by costly measures it is taking to improve safety and security for its 2.23 billion monthly active users. The social media company posted revenue of $13.23 billion in the period.

The social network beat the predicted $1.72 earnings per share, reporting $1.74.

Only months after a data privacy scandal, Facebook is seeing fewer frequent users than it expected.

Despite the criticism from advertisers and users, ad revenue and engagement should be healthy, according to Daniel Ives, a technology analyst at GBH Insights.

But the market wasn't just reacting to Facebook generating less revenue than expected.

In late May, the General Data Protection Regulation came into effect in Europe, restricting the way advertising companies collect data from individuals. Facebook said mobile made up 91 per cent of ad revenue in the recent period, compared with about 87 per cent a year earlier. "GDPR is an added head wind, albeit containable", he said. Instagram last month reported it had hit 1 billion monthly users for the first time, up from 800 million in September.

Instagram's business model is so far the most mature, and likely contributed meaningfully to the company's revenue in the quarter, analysts have said, though Facebook doesn't break out sales for the app.

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Almost all social media services have received greater scrutiny since USA intelligence agencies in January 2017 revealed that organisations tied to the Russian government had seeded content on the platform to shake up the 2016 U.S. presidential election.

"GDPR was an important moment for our industry".

"Over the next 18 months there are important elections beyond the USA and these will all be real tests for Facebook", said Zuckerberg during the earnings call.

This year has not been kind to Facebook shareholders.

"We also believe "considerable strength" from the Instagram side of the house has neutralized any soft spots on the core Facebook platform in our opinion".

Facebook suffered a blow in China on Wednesday when regulators there withdrew their approval of a company innovation hub to support local startups, the New York Times reported on Wednesday (local time), citing a person familiar with the matter.

The company remains in a dominant position in mobile advertising alongside Alphabet Inc.'s Google.

The biggest chunk of online advertising budgets tend to flow to the services with the most data on their users and the broadest set of users in terms of age.

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