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Facebook Shares Plunge After Earnings Fall Short

Facebook Shares Plunge After Earnings Fall Short

By Matt Phillips

Facebook shares plummeted more than 18 percent in midday trading on Thursday, erasing over $ 110 billion from the social media giant’s market value.

The sharp stock decline came a day after Facebook, one of the largest publicly traded companies in the United States, reported disappointing second-quarter earnings.

Of particular concern to investors was Facebook’s warning that revenue growth rates would continue to slow sharply in the coming quarters.

[Facebook said an accumulation of issues was starting to hurt its multibillion-dollar business.]

“Management commentary about decelerating topline growth during a quarter where the company fell short of ad revenue for the first time is what has led to the stock’s after-hours performance,” Goldman Sachs analysts wrote in a note to clients, referring to the initial market reaction to the earnings report on Wednesday.

Facebook has been one of the most influential stocks in recent years. I ts losses dragged down the Standard & Poor’s 500-stock index’s technology sector, the worst-performing part of the market early Thursday. Because the S.&P. 500 is weighted by market size, large companies — even after its early losses on Thursday, Facebook was worth more than $ 500 billion — exert the greatest influence.

There were signs that investors viewed Facebook’s woes as specific to the company. Shares of Apple, the largest company in the world by market value at more than $ 950 billion, were down only slightly at midday.

It was unclear whether Facebook’s sharp drop would derail a stock market that has been gaining traction this month. The S.&P. 500 has climbed more than 6 percent this year, despite a number of concerns, including rising trade tensions between the United States and its largest trading partners and the Federal Reserve’s increases in interest rates. The S.&P. 500 is only about 1 percent below its high hit on Jan. 26.

On Thursday, markets again showed their resilience. The S. & P. 500 was down only slightly despite the carnage in Facebook shares. In recent weeks markets have rallied as investors took heart in second-quarter earnings reports. Once the results are tallied, second-quarter earnings for companies in the S. & P. 500 are expected to have grown more than 20 percent, compared with the same period last year, reflecting the strength of the American economy and the impact of corporate tax cuts.

Still, the sheer size of Facebook’s fall became a focus for investors. It was one of the largest single-day losses, in terms of market value, on record for a single stock.

The dollar value decline in Facebook’s market value Thursday is roughly equivalent to the entire value of some of the country’s most-well known companies, including General Electric, Texas Instruments and Union Pacific railroad.

But in a sense, the large decline shouldn’t be surprising. In recent years, valuations of the largest technology firms have surged.

Apple is foremost among then. But Amazon, Google’s parent company Alphabet and Microsoft are not far behind, with market values of more than $ 800 billion. And even after the sharp decline Thursday, Facebook is the fifth-largest publicly traded company, by market value, at more than $ 500 billion.

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NYT > Technology