Wall Street unfriended Facebook Inc. on Thursday — and it was an ugly breakup.
The social-media giant’s stock, among the most widely held in the nation, plunged 19% after Facebook warned that its sizzling growth is slowing amid the user-privacy concerns and other controversies that have rocked the company in recent months.
The stock tumbled $41.24 to $176.26 a share, wiping out $120 billion of Facebook’s overall stock-market value and lowering it to $511 billion.
The loss was the largest daily dollar decline for a publicly held U.S. company in history, topping a $91-billion plunge in Intel Corp.’s stock in September 2000 during the tech bust, Bloomberg reported, though Intel’s drop is still bigger when adjusted for inflation.
The fall also quickly erased $16.6 billion of Facebook Chief Executive Mark Zuckerberg’s wealth tied to his ownership of company shares. Still, even after the loss, Zuckerberg’s stake was worth about $70.8 billion.
Simply put, the stock’s nosedive “has everything to do with not being able to grow forever,” said Brian Wieser, an analyst with Pivotal Research Group.
The financial comeuppance for a company that had revenue of nearly $41 billion last year was tinged with irony.
Earlier this year, Facebook weathered an uproar surrounding the privacy of the more than 1.5 billion people who typically use its site each day. The issue hit a fever pitch after it was learned the Menlo Park, Calif., company had shared user data harvested from as many as 87 million accounts with the political consulting firm Cambridge Analytica.
Zuckerberg was forced to testify about the issues before U.S. lawmakers three months ago, and Facebook began making changes to further protect user data.
Yet, through it all, Facebook’s stock price was unharmed, even trading at record highs this week.
But that all changed in a matter of minutes after Facebook announced its second-quarter results after the stock market closed Wednesday. In after-hours trading, investors promptly dumped the stock, leaving some analysts irate that Facebook had not divulged its slowing growth earlier.
“It’s infuriating, to be honest,” analyst Scott Devitt of Stifel Financial Corp. said in a note to clients. “Mark Zuckerberg has been talking and writing about fixing the business for months now and yet management is just now discussing its impact to financial results.”
To be sure, Facebook continues to grow rapidly. Its advertising revenue and total revenue, for instance, both surged 42% in the quarter compared with a year earlier, and its profit jumped 31% to $5.1 billion — all gains most companies would envy.
But Wall Street was expecting even better gains to justify the price of Facebook’s stock. And because investors typically buy stocks at prices based on the expectation of future results, Facebook’s admission that its future revenue growth would slow was a tough pill for them to swallow.
Facebook’s revenue of $13.2 billion fell just shy of the $13.3 billion analysts expected — the first miss on a revenue forecast since 2015. And it didn’t help that user growth slowed in Facebook’s two most lucrative markets: North America and Europe.
The results were hit by investments the company made to bolster security in the aftermath of the Cambridge Analytica scandal and a Russian misinformation campaign on its site.
More worrisome for investors, Facebook said it had to adhere to strict new privacy rules rolled out in Europe in May that slowed ad revenue growth there. Should such rules be adopted elsewhere — as privacy advocates suggest — that could signal slower ad growth in other markets.
The company already has made changes to its platform that have slowed revenue growth, such as providing new privacy options that limit how much data Facebook can collect to fuel its ad business.
Indeed, Scott Kessler, an analyst for CFRA Research, said the company is stepping into a new phase in which lawmakers and consumers worldwide are more savvy about their privacy.
“Legal and regulatory developments have led to changes intended to support Facebook's platform and users, but they will notably restrain growth and profits for at least the next couple of quarters,” Kessler said.
Facebook has acknowledged that the tougher environment will hurt the company’s bottom line and has been warning about the limits of exponential growth. That, more than anything, is what spooked investors.
“We’re continuing to focus our product development around putting privacy first, and that’s going to, we believe, have some impact on revenue growth,” David Wehner, Facebook’s chief financial officer, told analysts on a conference call Wednesday.
Facebook also is emphasizing new technology, such as its photo-and-video montage feature called Stories, which doesn't generate nearly as much revenue as its news feed.
“Our total revenue growth rates will continue to decelerate in the second half of 2018,” Wehner said.
Devitt, the Stifel analyst, said the second-quarter results amounted to a “total reset” for Facebook, though he said he was “sticking with the stock on the sell-off because the damage is likely done and there is a good business here despite management.”
Other analysts said it was too early to tell if the second quarter amounted to a turning point, while some said the market overreacted to the results.
Richard Greenfield of BTIG Research said the security updates in Europe, for instance, were a one-time hit for the company.
“This is one-time step down, not a building head wind,” Greenfield wrote in a research note titled “Facebook's Death Has Been Greatly Exaggerated (by Facebook).”
Greenfield also noted that Facebook has a sizable safety net in its growing subsidiaries: Instagram, Messenger and WhatsApp. Those apps comport with Facebook’s near total focus on mobile, which is where the company earned 91% of its ad revenue in the second quarter.
Another crumb of good news for tech investors: At least the brutal sell-off wasn’t contagious.
Twitter Inc. dropped 2.9% and Snap Inc., the parent of Snapchat, slipped 0.2%. Amazon.com fell 3% and Alphabet Inc., the parent of Google, even edged up 0.8%.
Those results were reflected in market indices.
The Nasdaq composite index, which is laden with tech stocks, fell 1% to 7,852.18 on Thursday, but the blue-chip Dow Jones industrial average gained 0.4% to 25,527.07.