Facebook Inc. is big and moving fast — so when it hits the wall, it hits hard and feels it.
The social media giant’s market capitalization fell by more than $119 billion to $510 billion Thursday as its shares declined 19 percent to $176.26 after the company sparked worries that its dramatic growth curve was moderating.
Facebook’s net income jumped 31 percent to $5.1 billion during the second quarter ended June 30 and revenues increased 42 percent to $13.2 billion as the company logged nearly 1.5 billion daily active users.
But investors have even bigger expectations for the tech giant and the thinking in the market seemed to be that they needed to be rightsized.
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Mark Zuckerberg tried to highlight what the company is doing to fight misinformation, how its spending on artificial intelligence and virtual reality and how much Instagram has grown since he acquired the 16-person outfit for $1 billion in 2012.
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But investors focused on a series of warnings from chief financial officer David Wehner, who noted on a conference call that growth in European ad revenues “decelerated more quickly than other regions and was impacted primarily by reduced currency tailwinds and, to a lesser extent, the rollout of” the region’s new General Data Protection Regulation. Those rules came online in the quarter and gave users the ability to better control their digital lives, ending a kind of Wild West period online, at least in Europe.
The company’s also not getting as much money out of Instagram Stories as it does from Facebook ads.
“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,” Wehner said.
In addition to a “slight headwind” from currency the cfo noted, “We plan to grow and promote certain engaging experiences like Stories that currently have lower levels of monetization, and we are also giving people who use our services more choices around data privacy, which may have an impact on our revenue growth.”
And going into next year, he said expenses would grow faster than revenues as the company continues to invest in its future.
Lynnette Luna, principal Analyst at GlobalData, said: “Facebook is finally feeling some pressure from its bad publicity around data privacy, it is facing market saturation in North America and the General Data Protection Regulation law that went into effect in Europe.…Growth metrics in the U.S. and Canadian markets were particularly concerning as Facebook has been stagnant at around 185 million daily active users for four straight quarters. That metric is significant as Facebook earns more revenue from North American users than any other user geography globally.”
This makes the monetization of Facebook’s Instagram, WhatsApp and Messenger all the more important.
Instagram has become perhaps the most important digital home base for fashion brands looking to connect visually with consumers and engage them.
But Facebook isn’t sure just how lucrative Instagram Stories will ultimately be.
Sheryl Sandberg, chief operating officer, noted: “We have 400 million people sharing with Instagram Stories….The question is ‘Will this monetize at the same rate as News Feed?’ And we honestly don’t know. We’ll have to see what happens. There are good reasons to be very optimistic about the monetization. The opportunity — full screen, authentic, very engaging, different formats than Feed — gives us an opportunity to grow. We also don’t have all of our advertisers yet creating story ads. So obviously, as more and more advertisers come in and do that, the more and the better ads we’ll have.”
So as much as fashion needs Instagram, it looks like Instagram needs fashion — and other advertisers — as well.