Zuckerberg loses $17 bn in 2 hours after Facebook fails to meet expectations

Facebook misses analysts expectations for the first time in three years

Facebook Zuckerbergs Challenge, Mark Zuckerberg Facebook CEO Mark Zuckerberg | AP

Facebook founder Mark Zuckerberg is one person who now knows the value of privacy. With Facebook missing analysts' expectations in its quarterly results following the Cambridge Analytica scandal, the company's stock plunged more than 20 per cent on Wednesday that resulted in CEO Zuckerberg losing around $17.6 billion in net worth.

Facebook's shares went on a downward spiral 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.

Soon after the results, Zuckerberg, whose was worth $86.5 billion earlier on Wednesday when Facebook shares were trading at an all-time high, stooped to $68.9 billion, reported Fortune. As a result, Zuckerberg, who was the world's third richest person, was pulled down to the sixth position within 24 hours. 

The second-quarter results were the first sign that a new European privacy law and a succession of privacy scandals involving Cambridge Analytica and other app developers have bit into Facebook’s business. The company further warned that the toll would not be offset by revenue growth from emerging markets and Facebook’s Instagram app, which has been more immune from privacy concerns.

Facebook's fortunes shifted in under two hours as the company first reported revenue and user growth that missed expectations and then issued warnings about future growth and expenses. 

Operating profit margin, which fell to 44 per cent in the second quarter from 47 per cent a year ago, will sink to the “mid-30s” for more than two years, Chief Financial Officer David Wehner said in investor guidance. 

The plummeting stock price wiped out as much as $150 billion in market capitalisation and erased the stock’s gains since April when Facebook announced a surprisingly strong 63 per cent rise in profit and an increase in users.

If the share drop holds on Thursday, it would be Facebook’s largest single-day decline, topping a 12 per cent decrease in July 2012.

Facebook had cautioned investors to expect a big jump in second-quarter costs because of efforts to address concerns about poor handling of users’ privacy and to better monitor what users post. Total expenses in the second quarter surged to $7.4 billion, up 50 per cent compared with a year ago. 

Facebook forecast similar increases for the second half of the year, also citing spending on video content and marketing.

Its gloomy forecast for revenue growth surprised investors, though, and prompted many questions from financial analysts on a conference call with company executives on Wednesday.

The General Data Protection Regulation (GDPR) in the European Union also will cause a revenue drop. The new privacy law forced several changes to Facebook’s privacy terms and sign-up process, leading a minority of users to opt for non-personalized ads, which tend to generate less revenue.

Facebook’s daily active users in Europe declined by 3 million amid the new regulation. Worldwide daily user growth for Facebook’s namesake service slid for its sixth straight quarter, bringing it to nearly 1.5 billion users in the second quarter.

The company said for the first time that more than 2.5 billion users interact with at least one of its apps each month, but analysts have said many of them are spending more time with Messenger, WhatsApp and Instagram. Commercialisation of those apps is nascent.

(With inputs from Reuters)