Date
21 October 2018
Facebook expects its revenue growth rate to continue decelerating in the near future. Photo: Reuters
Facebook expects its revenue growth rate to continue decelerating in the near future. Photo: Reuters

Facebook warns of slower revenue growth; shares dive

Facebook said on Wednesday that its revenue growth will slow and expenses will rise, a warning that sent its shares crashing as much as 24 percent in after-hours trading and wiping out about US$150 billion in market capitalization.

After releasing its second-quarter results, the social network giant said it expects a big jump in costs because of efforts to address concerns about poor handling of users’ privacy and to better monitor what users post, Reuters reports.

“Our total revenue growth rates will continue to decelerate in the second half of 2018, and we expect our revenue growth rates to decline by high single-digit percentages from prior quarters sequentially in both Q3 and Q4,” CFO David Wehner was quoted as saying.

In the second quarter, total expenses stood at US$7.4 billion, up 50 percent compared with a year ago.

Expenses are expected to grow 50 percent to 60 percent compared with last year as the company invests in security, marketing and content acquisition, Wehner said.

“Over the next several years, we would anticipate that our operating margins will trend towards the mid-30s on a percentage basis,” the executive said, adding that margins would be down for more than two years.

Facebook’s operating margin fell to 44 percent in the second quarter from 47 percent a year ago.

The new General Data Protection Regulation (GDPR) in the European Union forced several changes to Facebook’s privacy terms and sign-up process.

Facebook saw monthly active users in Europe decline about 1 million people amid the new regulations, Chief Executive Mark Zuckerberg said on a conference call.

A data privacy scandal involving the political consulting firm Cambridge Analytica and misinformation on WhatsApp contributing to mob killings in India have added to the pressure on Facebook to re-evaluate its operations.

In the second quarter, Facebook’s revenue grew at its slowest pace in almost three years, rising just 14 percent to US$13.2 billion. The company reported US$5.1 billion in profit, or US$1.74 per share.

Growth in new users slowed with Facebook adding 11 percent more daily and monthly active users on the main Facebook app in the second quarter, compared with 13 percent in the preceding three months.

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RC

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