Last week wasn’t a good one for “the social network.” In case you haven’t been following the news, Facebook’s stock tanked (big time) last Thursday after a few days of declining market share, losing roughly 20 percent of its share in one day. That equates to some $120 billion in value, essentially erasing all of the gains that Facebook made in 2018.
If the above wasn’t clear enough of a picture for you, consider this: Last Thursday was the single worst session decline for Facebook since it went public in 2012, but it was also the biggest decline in stock market history. For reference, the next closest was Intel’s $91 billion plunge back in 2000. Facebook beat that by nearly $30 billion.
The good news for Facebook (and its investors) is that the company is still worth more than $500 billion. And it has shown it can rebound before, specifically when its stock declined earlier this year in the wake of the Cambridge Analytica situation. But losing a fifth of its market value doesn’t exactly give investors the warm fuzzies. This post will take a closer look at why Facebook is struggling and what the recent stock market situation likely means for the company’s future.
Slow Growth?
The official word on Facebook’s declining market share is that investors were put off by the rate at which the social network is growing at. This is particularly true in Europe, which is enforcing a new set of privacy laws that are impacting Facebook’s growth overseas. The thinking was that these new privacy laws were likely not going to impact stock, but that thinking was clearly wrong. The good news is that Facebook will likely figure out how to navigate the new privacy laws across the pond, which just went into action this quarter, and come out better in this aspect of things next quarter.
Another factor that’s impacting the growth of Facebook, notably when it comes to revenue and profitability, is the investment that the company is making in security. After the Cambridge Analytica situation, Facebook faced sharp criticism on just how it was able to be infiltrated by an entity that aimed to influence the 2016 presidential election. As you may recall, more than 50 million Facebook profiles were compromised. It’s only natural that Facebook would want to take the proper measures to ensure that such a situation doesn’t happen again, and Mark Zuckerberg even warned that the increased investment into enhanced security would likely decrease how profitable the company operated.
Paying for Mistakes
Finally, Facebook has made mistakes – and it’s likely that investors are punishing the social network’s shortcomings, at least in the near-term. Ever since the Cambridge Analytica scandal, many questions have been asked about how it manages its user’s data. In addition to facing questions about this, there’s been algorithm changes and other platform changes that haven’t been well received by users or investors. This all likely played into Facebook’s sharp decline.
Is Facebook Doomed?
Despite Facebook’s current stock market plunge, experts agree that the company will likely still remain very viable in the long term. There are many factors that back this up.
For instance, Facebook’s stock rebounded fairly nicely when it took a hit in the fallout of the aforementioned Cambridge Analytica situation. But the biggest reason as to why Facebook is likely to get through this tough time is because it’s currently undergoing efforts to make its platform much more engaging, thereby enticing it’s 2.5 billion users to spend more time on it. Advertisers flock where the eyeballs are, and if the changes that Facebook is making are successful, there’s going to be a lot of eyeballs on Facebook for longer periods of time. The ad dollars will follow and Facebook will be just fine, should this plan work out.
It’s been a tough go lately for the world’s largest social network, but the bottom line is the company is still valued at more than $500 billion on the market. It’s likely only a matter of time before Facebook’s stock starts trending upwards again.
Regards,
Ethan Warrick
Editor
Wealth Authority
