Facebook Stock Drops After Missing Forecasts

Jul 26, 2018
Originally published on July 26, 2018 8:51 am
Copyright 2018 NPR. To see more, visit http://www.npr.org/.

RACHEL MARTIN, HOST:

It looks like scandals and privacy concerns are beginning to take a toll on Facebook. The company's stock fell more than 20 percent. And Facebook's value dropped more than $100 billion in after-hours trading. This came after the company released its quarterly report, which missed Wall Street estimates. Joining me now to talk about all this - NPR's Laura Sydell. Hey, Laura.

LAURA SYDELL, BYLINE: Good morning.

MARTIN: So what happened?

SYDELL: Well, all those negative headlines are finally catching up to Facebook. They didn't report as much revenue as Wall Street was expecting, and they had the lowest user growth since 2011. And this is key. Remember; Facebook is a social network, and that's where its value comes from. In the U.S., they picked up almost no new users. And in Europe, they actually lost users. And in the U.S. and Europe, the company has its most valuable markets. And that's where they get paid the most for ads. So the company did actually see a 31 percent rise in profits from a year ago, which would be great for a lot of companies but not Facebook because it's been such a rocket ship of growth that that wasn't enough to keep Wall Street happy.

MARTIN: How come? I mean, what would keep Wall Street happy?

SYDELL: Well, let's start with what was said on the call to discuss the earnings. In the second quarter, the company's growth slowed by 7 percent, and executives of Facebook say the company is going to continue to see a slower pace of growth for the rest of the year, in part because the company's going to give users more privacy setting options. And that means it may limit the kinds of ads that they can see. And in Europe, they've got this brand-new privacy law that allows users to completely opt out of sharing their data.

And the second thing is that the company says it's going to spend more money on security. CEO Mark Zuckerberg says that's going to have an effect on profits. And this all ties back to, oh, that scandal where all those Facebook users' data was exposed. You may remember Cambridge Analytica. That's the data analytics firm and political consulting firm that was affiliated with the Trump campaign. It collected data through a personality quiz they put up on the site. In the end, the firm was able to get personal information about some 87 million users.

The third problem with the company is that it faces all the allegations about fake news going viral on the site. All that led to CEO Zuckerberg having to testify before Congress in April. And a lot of people praised his testimony, but it kept the spotlight on the problem. And while it didn't look like Congress was going to do anything right away, there was talk that Facebook had become too big. It doesn't face much competition. It could be a monopoly. And that could mean regulation in the future.

MARTIN: Facebook's become such an integral part of our culture now. I mean, in light of all these problems you just outlined, is it going to stay that way?

SYDELL: Well, you know, you're asking kind of is this the MySpace we once had in ancient history that...

MARTIN: Right.

SYDELL: ...Disappeared one day. (Laughter) You know, well, despite the slowdown, there are a lot of analysts who still feel pretty positive about the site. You may recall that this spring, there was a big campaign to delete Facebook. There were high-profile people who claimed they were going to do that - the entrepreneur Elon Musk, Apple co-founder Steve Wozniak, celebrities like Cher. I spoke with this firm called LikeFolio, however, which analyzes media, and they said that most of the people who left came back, and a lot of those people said it was hard to leave Facebook. They just couldn't get away. And that's the thing. It's so much bigger than MySpace ever was. I mean, it's got over 2 billion users. Facebook, remember; it owns two other large social networks - Instagram and WhatsApp. And Instagram now has over a billion users, and it's continuing to grow. So it's hard to get away from Facebook.

MARTIN: NPR's Laura Sydell. Thanks, Laura.

SYDELL: You're welcome.

(SOUNDBITE OF VELS TRIO'S "THE WAD") Transcript provided by NPR, Copyright NPR.