The Strategist

Scandals hit on Facebook market cap

07/26/2018 - 15:59

Facebook’s shares fell by 24% after publication of regular financial statements. This even indicates that investors are waiting for the company to have uniquely successful results. Facebook’s revenue grew 42% and profit – by 31%, but these results did not suit investors, as they were below expectations of analysts. In addition, they were concerned by forecasts of a slowdown in growth for the second half of the year. According to experts, the scandals around the social network played a role in the current results of Facebook since it still has to restore the trust of users.

Anthony Quintano
Anthony Quintano
On Wednesday, Facebook published financial statements for the second quarter: although the company's revenue grew 42% this year, to $ 13.2 billion, it was slightly worse than analysts' expectations ($ 13.4 billion). This is the first time since 2015, when the results of Facebook disappointed the observers. This immediately affected the company's shares: they fell by 24%, that is, the cost of Facebook decreased by $ 140 billion at once. The investors were also disappointed by the growth rates of the number of users of the social network: their number increased in the second quarter by 11%, while the growth was 13% in the previous quarter.

The mood of investors was influenced by the forecasts made by the financial director of Facebook: he reported an expected significant slowdown in the second half of the year and reduction of the margin in the medium term.

Earlier, the social network found itself in the middle of several scandals. First, Facebook was criticized for numerous fake news that appeared during the American presidential campaign in 2016. This spring, it became known that Cambridge Analytica company used data of 50 million users for illegal purpose. According to experts, the current results of Facebook are one of the first signs that the scandals really affected the image of the company and that they can have a fairly long-term impact on its financial results.

"This is a fork in the road for Facebook," said Daniel Ives, director of strategy and technology research at GBH Insights. In his opinion, the company has to restore public confidence, as well as work on increasing the number of users and the time they spend in the social network. According to analysts, such a strong fall in Facebook shares accompanied by still fairly positive statements can be explained by the fact that investors are accustomed to uniquely successful company results.


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