Revenue Shortfall Wipes Out Facebook’s Year-to-Date Gain

Revenue Shortfall Wipes Out Facebook’s Year-to-Date Gain

Revenue Shortfall Wipes Out Facebook’s Year-to-Date Gain

Facebook on Wednesday reported second-quarter sales and user growth that fell short of analysts' projections.

Facebook's Seattle engineering center.

Facebook had 2.23 billion monthly users as of June 30, up 11 percent from a year earlier. The ad sales portion of revenue hit $13 billion in the second quarter, good for a gain of 42 percent from the year prior.

Only months after a data privacy scandal, Facebook is seeing fewer frequent users than it expected.

Facebook's daily active users didn't grow at all in the United States, its most lucrative ad market, and the social network actually lost 3 million DAUs in Europe as a result of new privacy regulations. The company was bombarded by public criticism over its content policies, especially in countries such as Myanmar and Sri Lanka where misinformation has led to violence.

"We also believe "considerable strength" from the Instagram side of the house has neutralized any soft spots on the core Facebook platform in our opinion".

Facebook's 2.23 billion monthly active users and 1.47 billion daily active users were both up 11 percent from past year but also just shy of analyst predictions of 2.25 billion and 1.48 billion, respectively. The news sent Facebook shares crashing some 20 percent, which suggests reality may be catching up to the social networking giant - and the flap over fake news and related scandals may be starting to take a toll. At the stock's lowest point, more than $148 billion of the company's value - significantly more than the entire market cap of IBM ($134 billion) - had been wiped out.

Despite the rocky quarter, Facebook shares had hit an all-time high before Wednesday's earnings report and its quarterly revenue was still up 42 percent from this time previous year. While the stock fell modestly after the initial earnings numbers came out, it tumbled more sharply after CFO David Wehner warned of the revenue deceleration during Facebook's earnings conference call. The company's user base was unchanged in its biggest market, the USA and Canada, at 185 million daily users, while declining in Europe to 279 million daily users.

For almost two years, Facebook has appeared bulletproof despite a series of scandals about the misuse of its giant social network.

The Menlo Park, California-based company said it had profit of $1.74 per share, short of Wall Street expectations of $1.75 per share.

According to the research firm, Facebook-owned Instagram is making up for some of the slowdown in growth at social network and will generate $8.06 billion in worldwide ad revenue this year.

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.

Expenses are expected to grow 50 per cent to 60 per cent compared with a year ago as the company invests in security, marketing and content acquisition, he said. There are now 2.5 billion people who used at least one of Facebook's apps in June, including Instagram, WhatsApp and Facebook.

Facebook's first financial stumble in three years followed a quarter in which data-privacy issues came under harsh scrutiny, with chief executive officer Mark Zuckerberg testifying before US Congress for hours on the company's missteps.

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