Facebook briefly loses ‘half of South Africa’s GDP’ in value

Facebook shares took a hit on Wednesday after the world’s biggest social network reported weaker-than-expected user growth in the first full quarter since being rocked by a series of scandals on data privacy.

The company said profit was up 31 percent in the second quarter at $5.1 billion (R67 billion) as revenues rose 42 percent to $13.2 billion.

But shares slumped seven percent in after-hours exchanges after hitting record levels in official trading, with the quarterly report largely weaker than had been expected.

“Our community and business continue to grow quickly. We are committed to investing to keep people safe and secure, and to keep building meaningful new ways to help people connect,” said chief executive Mark Zuckerberg.

Zuckerberg has said he did not expect a meaningful impact from the uproar over data hijacked by political consulting firm Cambridge Analytica, but the last quarter’s figures suggested some cooling.

David Nathanson from global equity specialist at Bellwood Capital later said in a press release that yesterday’s release of financial results saw Facebook’s value falling by “as much as $148 billion (R1.95 trillion)”, which he said was almost half of South Africa’s 2016 GDP – just to put it all in perspective.

“The shock resulted from Facebook executives’ announcement that the company expects a significant slowdown in revenue growth in the coming years. Nathanson said the stock plummet demonstrated the issue of pricing a stock for unrealistic growth.

“This is common with so-called ‘sexy’ tech stocks,” said Nathanson. “Growth is not completely predictable and when there is no margin for error built in,  and the expected growth doesn’t materialise, the market can be unrelenting.”

The key metric of monthly active users rose 11 percent to 2.23 billion, below most estimates of 2.25 billion, while daily active users grew a weaker-than-expected 11 percent to 1.47 billion.

Almost all of Facebook’s revenue — $13 billion of the total $13.2 billion — came from online advertising, a sector dominated by the California social network along with Silicon Valley rival Google.

Although Facebook shares were in a slump after the Cambridge Analytica scandal broke earlier this year, the stock had risen sharply and hit record levels this month.

According to the research firm eMarketer, Facebook is expected to hold an 18 percent share of the $273.29 billion worldwide digital ad market, behind Google’s 31 percent.

According to the research firm, Facebook-owned Instagram is making up for some of the slowdown in growth at social network and will generate $8.06 billion in worldwide ad revenue this year.