Facebook Inc. chief executive Mark Zuckerberg’s fortune took a more than US$15 billion hit on Thursday, as the social media company suffered the biggest one-day wipeout in US stock market history a day after executives forecast years of lower profit margins, Reuters reports.
At least 16 brokerages cut their price targets on Facebook after chief financial officer David Wehner startled an otherwise routine call with analysts by saying the company faced a multi-year squeeze on its business margins.
That “bombshell”, as one analyst termed it, played into concerns on Wall Street that Facebook’s model could be under threat after a year dominated by efforts to head off concerns over privacy and its role in global news flow.
Shares closed down almost 19 percent at US$176.26, wiping more than US$120 billion off the company’s value or nearly four times the entire market capitalization of Twitter Inc.
Facebook’s margin fell to 44 percent in the second quarter from 47 percent a year ago as it spent heavily on security and initiatives to convince users the company was protecting their privacy.
“Over the next several years, we would anticipate that our operating margins will trend towards the mid-30s on a percentage basis,” Wehner said on a conference call with analysts.
The company also said revenue growth from emerging markets and the company’s Instagram app, which has been less affected by privacy concerns, would not be enough to repair the damage.
MoffettNathanson analysts called the company’s forecast “either the new economic reality of their business model or a very public act of self-immolation to stave off further regulatory pressure”.
Rahul Shah, chief executive at Ideal Asset Management in New York, a Facebook shareholder, said executives were trying to reset expectations about growth but the outlook caught Wall Street by surprise.
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