Most readers will know that Facebook's stock took a hit last week to the tune of 20% of its value. With a company the size of Facebook this equates to $119B in market value (readers are reminded that the stock market it speculative -Ed.).
The holders of the stock, especially half of the options traders, will be quite upset about this, but are there fundamental issues at work? Facebook’s current performance is actually quite positive:
- Revenue of $13.23 billion for the quarter (slightly off of estimates of $13.36B), up 42% year-over-year
- Profit of $5.1 billion for the quarter
- Flat user growth in North America (which has been true for years)
So, what’s the problem? Why were investors so spooked? It looks like the stock market darling had been growing quickly post-Cambridge Analytica (and the drop didn’t reach those levels -Ed.) and investors were eagerly ignoring the company’s warnings that investments in privacy would drive down performance.
Growth was negative in Europe as the population there becomes more privacy-sensitive (Facebook lost 3 million monthly users, or 1.06% of its user base) over the quarter and the 11% growth in Asia-Pacific was strong but not as strong as analysts had demanded.
Facebook was able to navigate the shift to mobile with almost no drama and now 91% of its revenue comes from the small screen. It looks like the global saturation of the platform might make growth more difficult for the social network but it has $42.31 billion in cash, one of the favorite Millennial social networks (Instagram), and a foothold in personal networking. Don’t overreact to this drop but do see it as a wake up call that the social titan is not immune from market forces.