Facebook in freefall as weak outlook stuns market

Facebook shares fall as user growth slows

Second-quarter revenue and average daily visitors fell short of analysts' estimates, according to a statement from the Menlo Park, California-based company.

The Cambridge Analytica scandal prompted several apologies from Chief Executive Mark Zuckerberg and generated calls for users to desert Facebook, which has grown strongly since launching as a public company in 2012.

Worldwide daily user growth for Facebook's namesake service slid for its sixth straight quarter, bringing it to almost 1.5 billion users in the second quarter.

The plummeting stock price wiped out as much as $150 billion in market capitalization and erased the stock's gains since April when Facebook announced a surprisingly strong 63 percent rise in profit and an increase in users. Facebook reported its slowest growth rate ever, with 2.23 billion people logging in at least once a month in June, below the 2.25 billion analysts expected. Zuckerberg in January said he was going to adjust the news feed to make sure people spend more time on Facebook with meaningful content from their friends and family members - a move the company has said would decrease user engagement with the site.

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Pressed by analysts who expressed surprise at the warning, Wehner said that operating margin would be hurt by factors including currency exchange rates and the introduction of new advertising products like the "stories" feature on Facebook and Instagram.

Indeed, Wehner said Facebook's revenue growth rate, year over year, will drop by "high single digits" in this quarter and in Q4.

Facebook's daily active users in Europe declined by 3 million amid the new regulation. The company's user base flatlined in its biggest market, the US and Canada, at 185 million daily users, while declining 1 percent in Europe to 279 million daily users.

The earnings call that cast serious doubt about Facebook Inc.'s seemingly unstoppable growth started normally enough.

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Daniel Ives, head of technology research at GBH Insights, said in a note that investors "clearly viewed Cambridge as a 'blip on the radar, ' although some soft spots in the advertising and overall user metrics will fuel the debate about further bumps in the road" for Facebook. Additionally, its daily active users-to-monthly active users ratio was held at 66 percent, showing that users were still hooked on using the social network.

According to the research firm, Facebook-owned Instagram is making up for some of the slowdown in growth at the social network and will generate US$8.06 billion in worldwide ad revenue this year. In Europe, Facebook had to respond to new privacy rules. They were also expecting 2.25 billion monthly active users for the quarter.

Facebook forecast similar increases for the second half of the year, also citing spending on video content and marketing. The company said headcount was 30,275 as of June 30 - an increase of 47 percent year over year.

"The company has a track record of resetting revenue growth and expense expectations only to turn around and exceed those expectations the following quarter", Munster wrote.

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