Facebook faced a day of reckoning Thursday as its shares plunged in the biggest one-day drop in stock-market history.
For nearly two years, Facebook has appeared bulletproof despite a series of scandals about the misuse of its giant social network.
But the Silicon Valley company’s streak ended Wednesday when it said that the accumulation of issues was starting to hurt its multibillion-dollar business and that the costs are set to continue playing out for months.
After a surprisingly weak growth forecast in this week’s earnings report, Facebook’s stock price dropped 19 percent today. MarketWatch reports the decline, which erased about $120 billion USD in market value, is both the largest single-day percentage drop ever and the largest market value loss in a single day, as well.
Facebook reported a 42 percent increase in revenue and a 31 percent jump in profits for its second quarter, compared with a year earlier. But the revenue of $13.2 billion missed Wall Street estimates of $13.4 billion. In addition, Facebook said its daily active users rose 11 percent from a year earlier to 1.47 billion, compared with 13 percent growth in the previous quarter.
Here’s what Facebook CFO David Wehner said on the fateful earnings call: revenue growth will probably “decline by high single-digit percentages from prior quarters” and “we are also giving people who use our services more choices around data privacy which may have an impact on our revenue growth.”
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.
Facebook has grappled with months of scrutiny over Russian misuse of the platform in the 2016 U.S. presidential campaign and the harvesting of its users’ data through the political consulting firm Cambridge Analytica. The results were among the first signs that the issues had pierced the company’s image and would have a lasting effect on its moneymaking machine.
Other factors have also hurt Facebook’s number of users, Zuckerberg said, including tough European rules that went into effect in May to protect people’s online data. The legislation, known as the General Data Protection Regulation, cost Facebook about 1 million users in Europe, he said.
“We’re investing so much in security that it will significantly impact our profitability,” CEO Mark Zuckerberg said during an earnings call late on Wednesday. “GDPR was an important moment for our industry. We did see a decline in monthly actives in Europe, down by about 1 million people as a result.”