Biz / Tech

Gloomy outlook for Facebook hits share price

There's a scratch in Facebook's Teflon coating. 

The social network’s user base and revenue grew slower than expected in the second quarter as the company grappled with privacy issues, sending its stock tumbling after hours.

The company also warned that it expects revenue growth to decelerate in the next couple of quarters as it promotes new and for now less profitable products — such as its Stories disappearing message feature. It is also allowing users to make “more choices” around data privacy amid public outcry and regulatory pressures.

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.

With an hour before trading began yesterday, shares had plunged more than 19 percent, plucking about US$17 billion in net worth out of the pocket of Facebook founder Mark Zuckerberg.

Still, the results suggest that Facebook may have weathered the scandal without major harm, even if its image has taken a hit. While revenue fell short of Wall Street estimates, it did so by only about1 percent; profits, meanwhile exceeded forecasts.

But Facebook continues to grapple with big questions, ranging from its users’ privacy to tech addiction to how it deals with fake news, hate speech and extremism. At times, it has seemed as though Facebook can’t quite decide where its values really lie.

It continues to straddle the line between policing what users say and remaining a neutral platform in an 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. User growth was flat in the US and the rest of North America, while it declined slightly in Europe.

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

The company earned US$5.1 billion, or US$1.74 per share, up 31 percent and above analysts’ estimates of US$1.71. But revenue — up 42 percent to US$13.23 billion — was slightly below the US$13.34 that Wall Street was expecting.

Facebook said the European privacy rules did not have a big effect on the quarter’s revenue — but they only took effect in the last month of the quarter.

One bright spot for Facebook has been Instagram, which it bought for US$1 billion in 2012. Instagram now has more than one billion users, and analysts expect it to be a model for how Facebook molds its other big app purchase, WhatsApp, into a lucrative business.

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