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Here’s why Facebook just lost $50 billion in market value

Higher expenses, lower margins, slower growth, and a lack of diversification is spooking investors.

Here’s why Facebook just lost $50 billion in market value
[Photos: Prateek Katyal/Unsplash; Pepi Stojanovski/Unsplash]
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On the surface, it would appear that Facebook had a good quarter when it reported Q4 results yesterday. The company beat on earnings per share ($2.56 vs. $2.53 per share expected), revenue ($21.08 billion versus $20.89 billion expected), and daily active users (1.66 billion versus 1.65 billion expected). Yet today when the market opened, Facebook shares plunged 8%, wiping over $50 billion off its market cap.

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So what happened? A few things particularly spooked investors, according to the New York Times reporter Mike Isaac:

  • Facebook’s expenses surged to $12 billion in the quarter. More expenses mean lower profit for the company due to shrinking margins.
  • Also, while revenue did grow, it’s now at 25%. In previous years, revenue growth was over 30% annually.

As Isaac states: “The money train cant go at full speed forever.”

But there are also other things that may be spooking investors. One is that a majority of Facebook’s revenue–98% of it–still comes from ads. As Facebook releases new privacy tools and governments continue to securitize the company and its data collection policies, that leaves Facebook’s advertising revenue vulnerable.

Another thing that could spook investors: The majority of Facebook’s revenue still comes from the main Facebook platform–not from Instagram, Messenger, or WhatsApp. In other words, right now Facebook has a diversification problem, meaning that too much of its revenue is coming from a single source on a single platform.

That’s something investors definitely don’t like.