From "The Star":
For nearly two years, Facebook has appeared bulletproof despite a series of scandals about the misuse of its giant social network.
But the Silicon Valley company’s streak ended Wednesday when it said that the accumulation of issues was starting to hurt its multibillion-dollar business — and that the costs are set to continue playing out for months.
Facebook’s stock tumbled more than 23 percent in after-hours trading, erasing more than $120 billion in market value in less than two hours. (ANDREW HARRER / BLOOMBERG)
Facebook reported on Wednesday that growth in digital advertising sales and in the number of its users had decelerated in the second quarter. The company’s leaders, including its chief executive, Mark Zuckerberg, added that the trajectory was not likely to improve anytime soon, especially as Facebook spends to improve the privacy and security of users.
Facebook has grappled with months of scrutiny over Russian misuse of the platform in the 2016 U.S. presidential campaign and the harvesting of its users’ data through the political consulting firm Cambridge Analytica. The results were among the first signs that the issues had pierced the company’s image and would have a lasting effect on its moneymaking machine.
In response, Facebook’s stock tumbled more than 23 per cent in after-hours trading, erasing more than $120 billion U.S. in market value in less than two hours. If those losses hold up through regular trading Thursday, the one-day stock decline will be the biggest in Facebook’s history.
“This is a fork-in-the-road situation for Facebook,” said Daniel Ives, chief strategy officer and head of technology research for GBH Insights, a marketing research firm. He said the challenges included regaining public trust as well as increasing the number of people joining Facebook and the time they spent on the platform.
Facebook reported a 42 per cent increase in revenue and a 31 per cent jump in profits for its second quarter, compared with a year earlier. But the revenue of $13.2 billion missed Wall Street estimates of $13.4 billion. In addition, Facebook said its daily active users rose 11 per cent from a year earlier to 1.47 billion, compared with 13 per cent growth in the previous quarter.
On a conference call to discuss earnings, Zuckerberg said profits would most likely take a further hit because the company planned to spend more on security. And the chief financial officer, David Wehner, said revenue growth would substantially decline for the rest of the year, partly because Facebook planned to give people more options with their privacy settings, including letting them limit the kinds of ads they saw.
Facebook has also said it wanted to hire 20,000 people by the end of 2018 to help review content posted on the site and to work on its security team. The company’s head count has already risen 47 per cent since last year, to 30,275.
“Looking ahead, we will continue to invest heavily in security and privacy because we have a responsibility to keep people safe,” Zuckerberg said on the call.