Facebook feels heat after profit warning

Facebook Headquarters in California, USA. Image: Shutterstock

Reuters, Jul 27, 2018, London: Shares of Facebook, one of the most influential companies in recent years, lost as much as a quarter of their value on Wednesday after executives said that profit margins would plummet for several years because of the costs of improving privacy safeguards and the slowing use in the biggest advertising markets.

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.

The operating profit margin, which fell to 44 per cent in the second quarter from 47 per cent a year ago, will sink to the "mid-30s" for more than two years, chief financial officer David Wehner said.

The plummeting stock price wiped out as much as $150 billion in market capitalisation and erased the stock's gains since April when Facebook announced a surprisingly strong 63 per cent rise in profit and an increase in users.

Facebook's results led to selling in other Nasdaq listings, including media and advertising rivals Amazon.com Inc, Netflix Inc and Alphabet Inc. Facebook had suffered a blow in China on Wednesday when regulators withdrew approval to its innovation hub to support local start-ups.

Misinformation on WhatsApp contributing to lynchings in India have raised the pressure on Facebook to re-evaluate how its services maintain security and decorum.