Here’s why Facebook lost $120b in market cap

This is the largest ever loss of value in one day for a US traded company. Will the social media giant recover?
27 July 2018 | 3 Shares

Mark Zuckerberg, Facebook CEO. Source: AFP

Facebook, despite all the scandals that came to light in the first half of this year, remained unaffected. At least financially.

It’s CEO Mark Zuckerberg put on a brave face when he had to testify before the government here in the US, and the company will stand trial for its role in various political and fake news campaigns in other parts of the world.

However, so far, it seemed as though the social media giant could hold on to its market capitalization because traders perceived it to be a company whose revenues (and user base) would remain unaffected, despite everything.

But they were wrong. And that’s what caused the company to lose US$120 billion in a single day. According to financial news services giant Bloomberg, it is the largest ever loss of value in one day for a US traded company.

Zuckerberg’s personal net worth plummeted by almost a quarter, losing US$15 billion as a result of the changes in the market.

According to analysts, the company missed user and revenue growth targets in its Q2 2018 earnings report, which caused the stock to tumble down.

To make things worse, the company’s CFO David Wehner disclosed to investors that “total revenue growth rates will continue to decelerate in the second half of 2018, and the company expects its revenue growth rates to decline by high single-digit percentages from prior quarters sequentially in both Q3 and Q4.”

The biggest blow to traders was the fact that there had been no growth in daily active users. Instead, the company actually saw a decline in the user base in Europe for the first quarter in recent years.

According to Reuters, Facebook’s daily active users in Europe declined by 3 million since the General Data Protection Regulation was implemented in May.

Analysts were even bothered by the recent blow that Facebook suffered in China when regulators withdrew their approval of a company innovation hub to support local startups. The company has also been struggling to launch WhatsApp Pay in India due to regulatory and technical challenges.

On a conference call to discuss earnings, Zuckerberg said profits would most likely take a further hit because the company planned to spend more on security.

So, will Facebook recover?

The company said for the first time that more than 2.5 billion users interact with at least one of its apps each month.

“On average, people only access nine apps each day, so Facebook has 30 percent of the attention market on mobile as it has Facebook, WhatsApp, and Instagram. The challenge is to leverage that portfolio and capture different moments and additional consumers,” Mindshare Chief Development Officer Marco Rimini told CNBC.

Among the three, the one that shows the most promise in terms of growth seems to be Instagram.

According to Data marketing technology company 4C, Instagram is seeing heavy interest from marketers and has seen about 204 percent growth in Instagram ad-spend year on year during the second quarter. That means there’s much more room to monetize the app.

By setting up campaigns that run on both properties [Facebook and Instagram], advertisers are able to take advantage of pinpoint targeting against a much bigger pool of people,” 4C’s Chief Marketing Officer Aaron Goldman said.

“Also, the time spent between the two platforms is sizable and advanced advertisers who are doing real-time advertising can cherry pick the perfect times of day to deliver their messages. If Facebook starts to pool WhatsApp and Messenger users into the mix and enable the same types of ads and targeting, the potential is truly uncapped,” Goldman exclaimed.

Given all the effort Facebook is finally putting into weeding out fake news on its namesake platform, the new features it is rolling out on WhatsApp to improve user experience, and the untapped potential of Instagram, among other things, it seems Analysts aren’t giving up hope just yet. Facebook will recover soon.