Facebook shares were down as much as 19.6% at $174.78 in early trading, a decline that would wipe about $124bn off the company’s value — or nearly four times the entire market capitalisation of Twitter Inc Facebook’s second-quarter results were the first sign that a new European privacy law and a string of privacy scandals involving Cambridge Analytica and other app developers are hitting the company’s business. Facebook also warned that the toll would not be offset by revenue growth from emerging markets and the company’s Instagram app, which has been less affected by privacy concerns.
Describing the announcements as “bombshells”, Baird analysts said the issues were to a large degree “self-inflicted” as Facebook sacrifices its core app monetisation to drive usage. Of 47 analysts covering Facebook, 43 rate the stock as “buy”, two rate it “hold” and two rate it “sell”. Their median target price is $219.30. MoffettNathanson analysts called the company’s forecast “either the new economic reality of their business model or a very public act of self-immolation to stave off further regulatory pressure”. The $15.8bn in net worth that Zuckerberg stands to lose in the move is equal to the wealth of the world’s 81st-richest person, currently Japanese businessman Takemitsu Takizaki, according to Forbes real time data.
Some analysts said Facebook’s issues would not be easily resolved. “Unlike Netflix, whose quarterly shortfall we saw as temporary, here we see an evolution of the story, albeit a portion of which we expected,” said Daniel Salmon, analyst at BMO Capital Markets. Others, however, saw a silver lining in Facebook’s emphasis on more engaging content and its promotion of stories on its News Feed, which would support revenue over the longer term. “Bears win this quarter… but not the war,” said Brent Thill, an analyst with Jefferies.
Sources and photo-credits: Reuters, Gulf Times