UPDATED: Shares of Facebook plunged 19% in trading Thursday, as investors reacted to signs that the social-media giant’s user and revenue growth are significantly slowing down.
The stock drop, to its lowest levels in nearly three months, wiped out nearly $120 billion in market capitalization for Facebook and dragged down other internet and tech stocks including Twitter and Snap. Facebook’s market cap was $629 billion at market close Wednesday, and ended the day Thursday at around $510 billion. The massive drop in market value represented the biggest single-day decline in history for any publicly held company, according to Thomson Reuters data.
Facebook CEO Mark Zuckerberg’s net worth plummeted more than $15 billion with the stock dive, although it’s still around $67 billion, according to Forbes’ real-time net worth tracker.
What drove the selloff: Investor concern about Facebook’s growth cooling down.
Facebook’s daily active users for the second quarter of 2018 were effectively flat in the U.S. sequentially, and even declined in Europe compared with Q1 — marking the first time the company has seen such a decline in recent quarters.
The big story from the earnings report was the forecast that revenue will decelerate in the second half of 2018, Pivotal Research analyst Brian Wieser wrote in a research note. “[W]hile the company is still growing at a fast clip, the days of 30%+ [revenue] growth are numbered,” he wrote.
Facebook CFO David Wehner told investors revenue growth would decline significantly over the next few quarters, and that Facebook’s operating margin would drop from 44% in Q2 to the mid-30% range over a time frame of more than the next two years.
In Q2, Facebook’s total revenue growth rate dropped about 7 percentage points compared with Q1. “Our total revenue growth rates will continue to decelerate in the second half of 2018, and we expect our revenue growth rates to decline by high-single digit percentages from prior quarters sequentially in both Q3 and Q4,” Wehner said.
Factors contributing to Facebook’s slowing sales growth include currency-exchange rates, compared with “the tailwinds we have experienced over the last several quarters,” Wehner said. In addition, the company expects to invest in products like Stories “that currently have lower levels of monetization,” while the introduction of new controls for users to limit their data-sharing with Facebook “may have an impact on our revenue growth,” the CFO said.
In the wake of the Cambridge Analytica data-privacy scandal, “Legal/regulatory developments have led to changes intended to support FB’s platform and users, but they will notably restrain growth and profits for at least the next couple of quarters, in our opinion,” Scott Kessler of CFRA Research wrote in a note.
For Q2, Facebook’s daily active users increased 11% year-over-year, to 1.47 billion on average during the month of June. That’s down from its 17% DAU growth rate a year ago.
Even with the stock selloff, Facebook remains massively profitable and has a growth profile traditional media companies would kill for. Q2 revenue rose a whopping 42%, to $13.0 billion, and net income was up 31%, to $5.1 billion. Global monthly active users hit 2.23 billion as of June 30, up 11% year-over-year.