Facebook stocks plummet more than 20% amid concerns over growth

Mark Zuckerberg

Shares in the technology company and publisher plunged by nearly 25 per cent in late trading after David Wehner, chief financial officer, said that Facebook's revenue growth would decelerate in the second half of the year and expenses would soar in 2019.

Instagram has grown to 1 billion monthly users from 600 million in late 2016, while Facebook's two messaging apps, Messenger and WhatsApp have each reported well over 1 billion monthly users. Down 20 percent in after-hours trading, the shares lost any gains they had made this year.

Facebook CEO Mark Zuckerberg was in Europe last quarter discussing data policies with lawmakers.

The average estimate of 15 analysts surveyed by Zacks Investment Research was for earnings of $1.75 per share.

In February, the research firm eMarketer estimated that the number of Facebook users under the age of 25 would fall by about 2 million this year.

Wehner attributed the poor revenue expectations to several factors: currency headwinds, the R&D cost of building and promoting new experiences, and impacts on Facebook's business from new privacy regimens in Europe due to GDPR. Fourteen analysts surveyed by Zacks expected $13.43 billion. Zuckerberg in January said he was going to adjust the news feed to make sure people spend more time on Facebook with meaningful content from their friends and family members - a move the company has said would decrease user engagement with the site.

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

He said the company will invest "billions of dollars per year" improving safety and security after a bruising period of headlines about fake news and election meddling.

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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.

Facebook's daily active users for the quarter were 1.47 billion, shy of the 1.49 billion forecast by StreetAccount and FactSet.

As Facebook gets bigger, reaching a majority of the world's internet-connected population, it's becoming more reliant on properties other than the company's main social network to fuel growth. Facebook's results prompted selling in other Nasdaq listings, including media and advertising rivals Amazon.com Inc, Netflix Inc and Alphabet Inc.

While privacy was an issue in Europe, politics played a role in North America, which is the company's most lucrative advertising market.

Of the newer endeavors, Instagram's business model is the most mature, and likely contributed meaningfully to revenue in the quarter, analysts have said.

It said it now employed 30,275 people, up 47% from a year ago. Facebook's shares had gained more than 10 percent over the last month and closed higher at $217.50 on Wednesday, before the company reported earnings.

He added that Facebook has "a track record of resetting revenue growth and expense expectations only to turn around and exceed those expectations the following quarter". Management also warned revenue growth rates would decelerate in Q3 and Q4.

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