Facebook’s financial reports following the Cambridge Analytica scandal was always going to be an eye-opening experience but, after their announcement on Wednesday, Facebook’s global market value took an almighty plummet.
On start of play Thursday 26 July, when US markets reopened, Facebook saw more than $109 billion (£83 billion) wiped off of its market valuation.
That almighty crash comes as the result of Facebook shares collapsing by 18% when the New York Stock Exchange opened its doors. The collapse is a direct result of the news that Facebook lost three million users in Europe alone thanks to the revelation around Cambridge Analytica’s far-reaching gaze over user profiles.
Facebook founder Mark Zuckerberg also took a $14.5 billion (£11 billion) hit to his own personal fortune in the process due to owning nearly 17% of the company’s shares. He’s now down from the world’s third-richest person back to its sixth – a position he was in three years ago.
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Facebook had already warned investors ahead of the market opening that they should expect a significant decline in growth rate, with users in Europe falling from 282 million to 279 million.
David Wehner, Facebook’s CFO, said during a call on Wednesday that the company’s decision to give users “more choices around data privacy” following the Cambridge Analytica scandal and GDPR compliance “may have an impact on our revenue growth”.
“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,” he said. “Looking beyond 2018, we anticipate that total expense growth will exceed revenue growth in 2019.”
As many of you who regularly commute by public transport, or those who watched the World Cup may, have noticed Facebook has been on a push to regain user trust following its privacy scandals. Wehner warned investors that these, along with costs towards efforts to improve data handling, will have a direct impact on the business’ growth too – but it’ll be worth it in the long run.
“Over the next several years, we would anticipate that our operating margins will trend towards the mid-30s on a percentage basis,” he explained.
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While gargantuan in sheer number, the drop in Facebook’s market value doesn’t spell the end for the company. Not only did the Cambridge Analytica scandal only really affect Facebook users and not those on other Facebook-owned services like Instagram, WhatsApp or Oculus devices, but Facebook has been facing a trickling loss of younger users for years. Without knowledge on what demographic the three million European users who abandoned the service fit into, it’s hard to know just how easy it’ll be for Facebook to win them back.
Needless to say, the next year will be very interesting for Facebook’s financial fortunes.
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