Facebook: Explaining the company’s massive share slump

Image copyright Getty Images Image caption Other tech companies shares fell as Facebook stock plummeted
 

It was one of the biggest one-day losses in US corporate history.At the start of the day, Facebook was valued at $630bn (£481bn). By the end, it had dropped to $510bn (£389bn). Company founder Mark Zuckerberg personally lost more than $15bn (£11.5bn) in one day, seeing him fall from fourth to sixth on Forbes’ list of global billionaires. The drop came after the social media giant published its second quarter results. Although still positive, they came in below investor expectations – and company shares had plummeted nearly 20% by the end of the day. So why the weaker numbers? Why did markets react so badly? And what does this mean for Facebook? The firm announced that its user growth rose at its slowest rate in two years. It also warned that billions in spending, planned to improve privacy and track advertisers, would outweigh revenue gains. Those revenue gains had themselves been limited by a fall in user numbers in Europe and people making use of new options to limit advertising. Facebook attributed their results to a new advertising format and giving users more control over privacy. But the elephant in the room was the swirl of scandals surrounding the company. The biggest involved Facebook sharing the data of 87 million users to a researcher at Cambridge Analytica, a political consulting firm Craig Erlam, senior market analyst at Oanda, said these scandals have had a “negative impact” for the firm. “Trust is so important with consumer trends,” Mr Erlam told the BBC, “and people may feel that Facebook betrayed their trust.” Facebook has been the dominant social media giant for years, and remains vastly popular. In its results, the company said it had more than 2.2 billion monthly active users at the end of June. But their latest data does suggest user number growth is slowing. A study from the US-based Pew Research Center suggests young people are ditching Facebook for Snapchat, Instagram and YouTube, with 85% of teens preferring the video platform to Facebook. The company’s market value dropped around $120bn in one day. To put that in context, McDonald’s is valued at $122bn on the New York Stock Exchange, with US industrial giant General Electric valued at $114bn.