Charlie Bonham 27 July 2018
Facebook’s share price has tumbled more than $100bn. One of the largest falls in stock market history.
The fall came after it shocked the market with a warning that both growth and profitability are set to slow.
Despite buoyant growth in recent months, reaching an all-time high on Wednesday, Facebook warned that the second half would see a slower pace of revenue growth, and that profit margins in the years to come are set to slip.
Why the drop? It’s all in the data
Facebook hit the headlines earlier this year when it came to light that Cambridge Analytica had used data, harvested from Facebook users, to target US voters with personalised political advertising, based on psychological profiles.
Now new European data rules could make life tougher for Facebook. This might be one of the reasons behind the group’s more cautious view of prospects.
When people sign up with Facebook, they usually make a huge amount of data available to the group. Data which Facebook can analyse, package up, and sell to advertisers looking for potential clients whose interests and habits match their target markets.
Greater restrictions on the use of data, or more users opting out of making their data available, would explain the headwind the group anticipates.
What next for Facebook?
Behind it all lies the big, looming question for Facebook. With around a third of the world already on Facebook, has it got as big as it is going to get? How many more people are realistically going to join?
As ever with the stock market, share prices reflect the balance of supply and demand for the individual shares in question. When Facebook warned of slower growth it tipped the balance, sending the stock tumbling.
Investors who bought recently will be ruing the drop. Although Facebook was trading a shade over $150 after the Cambridge Analytica Scandal, it now sits just over $175. And those who bought a few years ago should still be sitting on healthy gains.
The future outlook for Facebook’s share price will depend on whether the group can convince the market that new innovations it says it’s planning can reverse the slowdown.
Wall Street investors have recently seemed to think that tech stocks were a slam-dunk, Facebook’s a reminder that in the stock market, there are no guarantees. Remember the share price could fall further from here, and past performance isn’t a guide to the future. All investments fall as well as rise in value so you could get back less than you invest.
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