Facebook’s critics would have experienced a fair amount of schadenfreude last week when it lost a fifth of its value when weaker-than-expected results wiped 24% off its share price, the eye-watering amount of $120bn.
It’s now the largest one-day sell-off in history, but also the biggest sign to date that Facebook’s past privacy transgressions are finally catching up with it. Finally.
It seemed Facebook was impervious to the many below-the-water-line direct hits that would have sunk any other business – brought on by one scandal after another, from Russian internet trolls meddling in US elections to the enormous privacy violations its lax terms allowed Cambridge Analytica to pull off.
But it missed Wall Street’s expectations last week and it gave the jittery brokers the gap they needed to express months of frustrations and concerns. Brokers must certainly have been primed for a run on Facebook’s stock when another of the scandals broke. They might have thought this was it. Nobody said the stock market was a rational place.
This despite otherwise good results: revenue was up 42% year-on-year to $13.2bn (but below the $13.4bn predicted), while Facebook now has 2.23bn monthly active users and 1.47bn daily active users, both a 11% increase over the previous year. Some 2.5bn people use Facebook and its WhatsApp, Messenger and Instagram apps.
Facebook has broken many laws and rules in the way it has handles its users privacy. But Facebook broke Wall Street’s rules. It missed predictions. Breaking all the other rules – around privacy and being the victim to manipulation by a foreign power and a research firm – don’t matter to Wall Street as much as its own rules do.
There is a line of argument that Facebook is too big to fail, and another that this is a mere blip. A $120bn blip worth a fifth of the market cap. A fairly significant blip.
Whether it’s a market overreaction or that moment of long-awaited schadenfreude, we’ll only know in the next few months.
Mark Zuckerberg himself lost nearly $16bn of his personal fortune and is now worth only about $71bn.
What the New York brokers seemed most concerned about was the flat growth in the US and Canada (at 185m users), where Facebook makes most of its advertising revenue. It added just 22m new users worldwide; while the new European GDPR privacy regulations must have had an impact.
But what Facebook should really be worried about is that the youth of the world are foregoing the social media giant, as recent studies have shown.
But this is a new Facebook we’re seeing. This is not the unstoppable growth every quarter Facebook the market has loved. This is a bunch of executives who have demonstrated in recent years – and especially this year after the Cambridge Analytica scandal broke – that they are inept at dealing with a crisis (including Zuckerberg’s indefensible defence of the indefensible over holocaust denialists this month alone).
This is the team of players expected to start weathering the storm that any company eventually faces. Seasoned executives know how to deal with the inevitable troughs of life. Wall Street must be asking itself how well equipped Zuckerberg will be – especially as the business mantra he’s most famous for is “move fast and break things”.
Too many things have been broken along the way. And each time Zuckerberg has taken responsibility. A $120bn hit is that responsibility converted into dollar terms.
Maybe the brokers – who spend their lives peering at various events and their consequences as if they were staring into a crystal balls – see the signs that Facebook’s Gordian knot on our digital lives is starting to unravel.
This article first appeared in Financial Mail