Poof. There goes a quarter of really impressive stock gains.
Over the last month, Facebook’s stock reflected investors’ apparent lack of concern about potentially damaging regulation or meaningful loss of users in the wake of the Cambridge Analytica scandal. After plummeting in the weeks after the news broke, the stock had soared well above pre-scandal levels, especially after a strong financial performance in the first quarter.
Until today. After Facebook’s second-quarter earnings report showed that it missed analysts’ expectations on revenue and user growth, and a subsequent prediction on the company’s earnings conference call that its revenue growth would slow substantially in the next six months, Facebook’s stock is down 23% in after-hours trading, giving up all of its gains since its glowing first-quarter earnings report.
On the Q2 earnings call, CFO David Wehner said the company expects revenue growth to slow to single digits over the next two quarters from 42% year-over-year in the second quarter. That dire prediction resulted in the stock getting hammered. In the near-hour after the release of the earnings report, the stock was down about 8%. But once Wehner revealed the slow future revenue growth expectations, the stock fell further.
Wehner attributed the poor revenue expectations to several factors: currency headwinds, the R&D cost of building and promoting new experiences, and impacts on Facebook’s business from new privacy regimens in Europe due to GDPR.
Although Facebook’s Q2 earnings report showed that it missed earnings and user growth expectations by only slim margins, investors may have been looking for a reason to run.