This chart from Bloomberg shows how Facebook is facing the biggest loss of market value in cash terms ever:
That $151bn loss is based on Facebook’s shares dropping 24% (their worst point overnight).
Currently they’re still down 18%, which is a loss of around $113bn – so still the biggest rout in history (although that’s not adjusted for inflation).
Wall Street analysts are worried that Facebook suffered a slowdown in user growth last quarter.
The number of North American daily active users on the site remained flat, while the European user base actually shrank — following the Cambridge Analytics scandal, and new data protection rules.
Bloomberg point out that several Facebook executives have been selling shares in recent months. A canny move, given today’s rout….
As you can see, Facebook missed several forecasts last night (although earnings per share were better than estimated)
Facebook shareholders are suffering a historic loss of value today:
Colin J Sebastian, analyst at Baird, says Facebook’s share price has been struck by two self-inflicted blows.
Facebook dropped two “bombshells” on the Q2 earnings call, a significant slowdown in revenue growth for Q3/Q4, followed by operating margin declines over the next 3+ years.
Importantly, these are “self-inflicted” issues to a large degree, as Facebook sacrifices core app monetization to drive usage/engagement of Stories.
Lower margins will result from continuing large-scale investments in computing infrastructure and headcount, but without meaningful related revenue streams. While shares are moving to the “penalty box,” we believe after-hours trading already embeds model changes. Maintain Outperform rating.
At one stage, Facebook’s shares were down a hefty 20% – wiping around $125bn off its value.
That’s basically the value of fast food chain McDonalds .
Facebook’s “nightmare” guidance of lower revenue growth and higher costs is causing the rout, says GBH Insights head of technology research Daniel Ives said.
Facebook shares tumble
Facebook is tumbling in early trading on Wall Street, after the social network giant revealed the true cost of its data scandal last night.
Shares in Facebook have plunged by 18% – an astonishing fall for a company of this size.
They have fallen to $178.40 each, down from $217.50 before the company released its results last night.
Bloomberg reckons this is Facebook’s record one-day fall (unless shares recover during today’s session).
Investors are unfriending the company after it missed revenue and user numbers in the last three months. But the real concern is that Facebook expects to be less profitable in the coming years, as it strives to clean up its network following the Cambridge Analytica revelations.
David Wehner, Facebook’s chief financial officer, spooked investors yesterday by predicting that the revenue slowdown will continue for some time.
Facebook basically admitted that the cost of improving security, and driving out fake news, will make a big dent in profitability.
Crucially, Wehner warned that Facebook’s operating margins will stop from their current rate of 44% (very tasty!) by around 10 percentage points.
These quotes did the damage:
“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.”
“Looking beyond 2018, we anticipate that total expense growth will exceed revenue growth in 2019,”
“Over the next several years, we would anticipate that our operating margins will trend towards the mid-thirties on a percentage basis.”
Reaction to follow!
Facebook shares have been hammered in pre-market trading….as traders prepare for the open of Wall Street….
Chris Beauchamp, chief market analyst at IG Group, argues that investors shouldn’t totally lose faith in Facebook, despite yesterday’s disappointment.
“Perhaps the data scandal is at last beginning to bite in Facebook’s earnings. Certainly, the frequent references to the other platforms available such as Instagram and the new revenue metric of how many people use at least one of the FB apps each month send a message that this is a company looking to find ways of becoming more than just a social media platform.
High expectations can be a remarkable burden, and the reaction is often brutal when they are missed, but the revenue miss was slight, and $13.2 billion is not to be sniffed at. Facebook might have its wings clipped, but it is still a remarkable money-making machine.
Fortune’s David Meyer has a pithy explanation for how Facebook’s latest results disappointed Wall Street last night:
The company announced revenues and daily active user numbers that fell short of analyst estimates ($13.04 billion vs. $13.32 billion for the quarter, and 1.47 billion rather than 1.48 billion) and, more worryingly for investors, it warned that its increasing privacy efforts would hit its growth rate further in the second half of this year.
Indeed, user numbers in North America are flat and those in Europe have actually fallen. So the expectation that Facebook was just going to shrug off Europe’s hard-hitting new General Data Protection Regulation (GDPR), as well as the privacy scandals that have plagued it through much of the year so far, was way off the mark. These things are making a difference, and they will continue to do so.
Facebook’s stock market woes could go down in stock market history, says CNBC’s Michael Santoli.
Newsflash: The European Central Bank has left eurozone interest rates unchanged, at its meeting today.
That means the headline borrowing rate remains at zero, an all-time low. Banks still face a negative interest rate (-0.4%) for leaving cash at the ECB’s vaults rather than lending it.
The ECB says it expects to leave interest rates on hold until the summer of 2019. It also affirmed that it intends to halt its asset-purchase stimulus scheme at the end of 2018 (a decision it took at its previous meeting).
So no surprises here. President Mario Draghi will face the press in 45 minutes. He can expect questions about when summer starts and ends exactly (a tricky call if we get another heat wave next year).
Market analyst David Jones points out that Facebook’s shares hit record highs yesterday, before the company gave Wall Street a nasty shock after trading ended.
Facebook shares remain on track for a massive slide when trading begins in New York, in less than two hours time.
The stock is down around 20% in pre-market trading, after it missed Wall Street expectations last night and warned that profit margins will be thinner than expected in the years ahead.
This would eliminate all Facebook’s gains this year:
Such a staggering selloff would wipe around $125bn off Facebook’s value, and drag founder Mark Zuckerberg down the list of the world’s top billionaires.
The French government has weighed in, seeking ‘clarification’ on the agreement reached between Juncker and Trump yesterday.
Finance minister Bruno Le Maire sounds concerned that France’s farmers could suffer, declaring firmly that agriculture should “be kept outside the scope of the discussions” on lowering trade barriers.
Le Maire says:
“We have high sanitary, food and environmental standards as well as rules of production to which we are attached and that guarantee the protection and safety of our consumers.
Europe will not compromise on these norms.”
Writing in the New Statesman, Stephen Bush argues that Jean-Claude Juncker outplayed Donald Trump yesterday:
In reality, it’s a remarkable coup for Juncker. The EU is already seeking to buy more gas as part of the Commission’s long-term efforts to wean the continent off Russian energy.
The EU already has zero tariffs on soy in place, and American soybeans are currently at a low price thanks to Trump’s trade war with China making them attractive to European farmers anyway.
But…. that might also threaten the agreement’s viability. The president might rip it up, if he decides he got the rough end of the deal.
One reason why Trump’s White House is so erratic is that the president’s mind changes depending on which advisor is currently in favour: those wanting to avoid a trade war are currently on the up, but that could change.
And that Juncker has conceded very little that the EU hasn’t already conceded in practice may mean that Trump decides he’s been had and that the whole mess is re-opened in the not too distant future.
Britain’s Department for International Trade is hoping that America will soon lift its tariffs on EU steel and aluminium.
In a statement, it says:
“We welcome the agreement by the U.S. and the EU to work together to reduce barriers to trade and to further increase trade and investment,”
“We look forward to progress towards the removal of steel and aluminium tariffs and de-escalation of the tit-for-tat action that could harm businesses and jobs on both sides of the Atlantic.”
US-China trade spat sinks Qualcomm’s big deal
Overnight, China has escalated its trade dispute with America by thwarting a $44bn takeover deal.
Beijing regulators sunk chipmaker Qualcomm’s attempted takeover of Dutch rival NXP, by declining to approve the deal.
Without a green light from China, the deal expired as the clocks struck midday in Beijing (midnight in New York) – even though eight other regulators around the globe had signed it off.
This makes Qualcomm the biggest casualty yet of the Trump trade wars. It launched its takeover of NXP in October 2016, so the collapse of the deal is a serious blow.
Qualcomm CEO Steve Mollenkopf admitted last night that the tensions between America and China were scuppering the deal, telling Bloomberg:
“We didn’t see anything in the near-term that would make it worthwhile to change the timing. There were probably bigger forces at play here than just us.”
It’s a reminder to the White House that China can make things difficult for US companies if president Trump continues to impose tariffs on their imports.