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Facebook's day of reckoning: Blip or sign of broader turn?

AP  |  New York 

faced a day of reckoning as its shares plunged in the biggest one-day drop in stock-market history.

The 19 per-cent drop vaporized USD 119 billion of the company's stock-market value; saw his net worth fall by roughly USD 16 billion as a result. It was Facebook's worst trading day since going public in 2012; the collapse eclipsed Intel's decline of USD 91 billion in September 2000, without adjusting for inflation.

The plunge followed Facebook's warning late Wednesday that its revenue growth will slow down significantly for at least the remainder of the year and that expenses will continue to skyrocket.

In a sign of just how bullish investor expectations were, though, the collapse merely returned shares to a level last seen in early May. At that point, the stock was still recovering from an earlier battering over its big privacy scandal, in which a political consulting firm with ties to improperly accessed the data of tens millions of users.

Now come the big questions: Is this a temporary setback, or the start of a painful new road for the giant And does a similar comeuppance await other behemoths? Both the slower growth forecast and heavier spending reflect problems largely of Facebook's own making.

New European privacy rules, inspired in part by Facebook's of its own users' data, are starting to hamper the company's business. And the increased spending aims, among other things, to prevent a replay of the fake and propaganda that Russian agents unleashed on an unguarded Facebook in an attempt to sway the 2016

Zuckerberg even noted during a call with analysts that "we're investing so much in security that it will significantly impact our profitability." Overall, giants - Facebook, Apple, Google, and others - have enjoyed almost unprecedented growth in revenue and stock price for years.

They have seemed unstoppable, even in the face of regulatory pressure, user dissatisfaction and broader existential questions about their impact on society. companies account for six of the 10 biggest companies in the Index.

Some see selloff as clear evidence that nothing can grow forever, especially not the world's biggest companies, especially not at the rate of nimble, promising startups.

Facebook revenue is still growing at a rate double that of A decade ago, almost no one could have imagined that Facebook would have more than 2 billion users, much less that its family of apps - Instagram, and - would also count members in the billions.

"Nobody knows where the top is, where that growth slows down," said Phil Bak, of and a former of who said he's been warning investors of a potential sell-off in large tech stocks.

Things could get rougher still. Those European privacy regulations, known as the General Data Privacy Regulation, or GDPR, went into effect with just one month left in the second quarter. That means Facebook could feel its effects more strongly later this year.

For more than a year - ever since Zuckerberg published a 5,000 word manifesto arguing that Facebook needs to make the world a better place by bolstering civic engagement and addressing social ills - the company has seemed torn between its philosophical mission and its economic one.

Wednesday may have been the first time this tension really broke into the open, probably because it threatened the one thing all investors care about: Money.

Michael Connor, whose Open Mic group helps investors push tech companies to address privacy, abuse and other issues, said it's "far too early" to see if Facebook's efforts to improve itself will prove fruitful. But the real question, he said, is whether the company can "continue to do what they are doing in the face of criticism from Wall Street."

Siva Vaidhyanathan, a at the and of the new book, "Antisocial Media: How Facebook Disconnects Us and Undermines Democracy," dismissed the significance of the stock plunge.

"isn't panicking," he said. "board isn't panicking. Most of its large institutional investors aren't panicking. They know they're in it for the long game.

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

First Published: Fri, July 27 2018. 05:35 IST