Facebook Inc’s shares lost as much as a quarter of their value on Wednesday after executives said that profit margins would plummet for several years due to the costs of improving privacy safeguards and slowing usage in the biggest advertising markets, Reuters reported.
The second-quarter results were the first sign that a new European privacy law and a succession of privacy scandals involving Cambridge Analytica and other app developers have bit into Facebook’s business. The company further warned that the toll would not be offset by revenue growth from emerging markets and Facebook’s Instagram app, which has been more immune from privacy concerns.
Facebook's fortunes shifted in under two hours as the company first reported revenue and user growth that missed expectations and then issued warnings about future growth and expenses.
Operating profit margin, which fell to 44 percent in the second quarter from 47 percent a year ago, will sink to the “mid-30s” for more than two years, Chief Financial Officer David Wehner said in investor guidance.
The plummeting stock price wiped out as much as $150 billion in market capitalization and erased the stock’s gains since April when Facebook announced a surprisingly strong 63 percent rise in profit and an increase in users.
If the share drop holds on Thursday, it would be Facebook’s largest single-day decline, topping a 12 percent decrease in July 2012.
Sales in the second quarter grew 42 percent, its slowest pace in nearly three years, to $13.2 billion compared with $9.3 billion a year ago.
Facebook’s daily active users in Europe declined by 3 million amid the new regulation. Worldwide daily user growth for Facebook’s namesake service slid for its sixth straight quarter, bringing it to nearly 1.5 billion users in the second quarter.