AP Photo/Richard Drew, File

Facebook Stock Tanks In Largest One-Day Loss In Market History

July 26, 2018 - 5:44 pm

NEW YORK (WCBS 880/AP) -- Facebook is found itself in big trouble Thursday.

The tech giant’s stock collapsed in the company’s worst trading day since going public in 2012. It was among the biggest one-day losses of market value in U.S. stock market history.

The 19 percent drop in Facebook shares vaporized $119 billion of the company's market value in the largest one-day loss in market history. CEO Mark Zuckerberg alone saw his net worth fall by roughly $16 billion as a result.

In a sign of just how bullish investor expectations had been running, though, the collapse merely returned Facebook shares to a level last seen in early May. At that point, the stock was still recovering from an earlier battering over a major privacy scandal.

Late Wednesday, Facebook warned that its revenue growth will slow down significantly for at least the remainder of the year and that expenses will continue to skyrocket.

The earnings covered the company's first full quarter since the Cambridge Analytica privacy scandal erupted. But analysts attributed the user growth shortfall largely to European privacy rules that went into effect in May, not to the furor over the political consulting firm with ties to President Donald Trump, which improperly accessed the data of tens millions of Facebook users.

Shares closed down almost 19 percent, at $176.26.

Facebook continues to grapple with big existential questions, ranging from its users' privacy to tech addiction to how it deals with fake news and misinformation, hate speech and extremism on its service.

But Bloomberg Technology Reporter Sarah Frier told WCBS 880’s Mack Rosenberg and Michael Wallace that the real issue behind the losses is that Facebook doesn’t have much left to work with when it comes to growth.

“Facebook is so big now; has had users all around the world, that it’s just hard to grow from here. The company is going to have to invest in growing its other properties like Instagram, WhatsApp, Messenger, from here on out, and those are kind of more experimental. They’re not as tried and true,” Frier said. “In the past, Facebook’s been able to just increase the number of ads in its news feed or increase the amount of people in the news feed. But in the future, that is just going to be a lot harder for the company to achieve.”

Frier said upon reporting its numbers, Facebook had missed revenue estimates from Wall Street for the first time since 2015. But then, a Facebook executive had a bleak message.

“The stock plunge got worse when the chief financial officer said, basically: ‘Get used to it. This is how we are going to be operating for the future. We’re going to be spending a lot more, and we’re going to be making a lot less,’” Frier said. “And the spending a lot more has also got Wall Street very concerned, because in addition to spending to grow these new product categories, they’re also having to spend on fixing a lot of the issues that we’ve talked about here, like the fact that there’s a lot of misinformation on Facebook, like the fact that Russia tried to meddle in the 2016 presidential election.”

At times, it has seemed as though Facebook can't quite decide where its values really lie. For instance, it continues to straddle the line between policing what users say and remaining a neutral platform in an increasingly divided world, and between protecting privacy while collecting as much information on its users as possible.

Facebook had 2.23 billion monthly users as of June 30, up 11 percent from a year earlier. Analysts were expecting 2.25 billion, according to FactSet. User growth — both on a monthly and daily basis — was flat in the U.S. and the rest of North America, while it declined slightly in Europe.

Facebook has largely saturated in the U.S. and Western European markets, and is now looking to countries such as Brazil, India and Indonesia for new users. Revenue from these regions, however, is far below what Facebook rakes in from the U.S. and Europe.

The company earned $5.1 billion, or $1.74 per share, up 31 percent and above analysts' estimates of $1.71.

But revenue — up 42 percent to $13.23 billion— was slightly below the $13.34 that Wall Street was expecting.

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.

Over the long term, GDPR may end up favoring Facebook and other large companies that have the resources to adapt to new requirements. They could similarly disadvantage smaller, lesser known companies that don't have the resources to comply and which could face big fines if they don't.

Those who have Facebook stock have been subjected to conflicting advice in the wake of the plunge.

“Obviously, but there are certainly very varying opinions I’ve seen from analysts, of people who say this is the time to buy the dip, other people who say, ‘Get used to this, this is the new reality, and Facebook is going to be less of a growth engine longer-term,’” Frier said.

One bright spot for Facebook has been Instagram, the photo-sharing app it bought for $1 billion in 2012. Instagram now has more than 1 billion users, and analysts expect it to be a model for how Facebook molds its other big app purchase, WhatsApp, into a lucrative business. So far, WhatsApp doesn't show ads, and its founders Jan Koum and Brian Acton left Facebook amid disagreements over advertising and other issues.

(© 2018 WCBS 880. The Associated Press contributed to this report.)