Facebook's Grim Forecast: Privacy Push Will Erode Profits For Years


Facebook Inc's shares lost as much as a quarter of their value on Wednesday after executives said that profit margins would plummet for several years due to the costs of improving privacy safeguards and slowing usage in the biggest advertising markets.

The firm said it had 2.23 billion monthly active users at the end of June, up 11% on June 2017, the slowest growth in more than two years.

Facebook generated revenue of $13.23 billion during the quarter ending June 30, compared to $9.32 billion during the same quarter past year.

Facebook's stock declined sharply as slowing global daily active users slow and scrutiny of data privacy issues continue to plague the social networking giant. The company also was bombarded by public criticism over its content policies, especially in countries such as Myanmar and Sri Lanka where misinformation has led to violence.

Ross Gerber, an analyst at Gerber Kawasaki, said the latest figures suggest that the tide may be turning for Facebook and other social networks.

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.

Wall Street didn't take too kindly to that: Facebook's stock price dropped almost 20 percent in after-hours trading. In the near-hour after the release of the earnings report, the stock was down about 8%.

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 past year.

In early April, Facebook revealed in a blogpost that Cambridge Analytica may have gained 37m more users' data than originally reported, bringing the total number of people who may have been affected to 87m. "We think that's the right thing to do for the business", he said.

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The same quarter saw the company suspend hundreds of apps as part of an investigation prompted by the Cambridge Analytica scandal and Zuckerberg's appearances before Congress and European parliament.

Total expenses in the second quarter surged to $US7.4 billion, up 50 per cent compared with a year ago.

Last week, Facebook incited controversy once again during a Recode interview, in which Zuckerberg said that some Holocaust deniers who posted to the social network aren't "intentionally getting it wrong".

While Zuckerberg has vowed to address the problems through major changes to its business practices and investments in new resources, analysts that cover the stock have maintained a positive outlook, insisting that it would essentially be business as usual for Facebook's lucrative advertising operations.

Throughout the earnings call, efforts were made to highlight the fact that the company's future growth would not come from the core Facebook platform but from its other properties, including its messaging apps and Instagram.

Facebook also missed the revenue projections of most analysts for the second quarter.

Facebook CEO Mark Zuckerberg could slide to sixth place from third on the Bloomberg Billionaires Index if the downward trend following late trading on Wednesday in the U.S. continues through Thursday.

Facebook's headcount increased 47% year-on-year, to 30,275 as of June 30, 2018.