In mid-July, Facebook’s stock was at an all-time high. However, the first set of meaningful results following the Cambridge Analytica scandal (as reported on Digital Journal “Facebook sends Cambridge Analytica warning to users”) plus the company revealing a disappointing second-quarter earnings and forecasts, saw shares drop in value significantly.
According to the Financial Times, Facebook shares dropped as much as 24 percent, which had the effect of wiping up to $140 billion off the company’s value. This was, the BBC reports, in one of the largest after-market drops eve recorded.
In terms of new user growth, Facebook reported that it had 2.23 billion monthly active users at the end of June, which was an increase of 11 percent on June 2017. This was the slowest growth in more than two years.
To gain an insight into what the data means for Facebook in the shorter-term, Investing.com Senior Analyst Haris Anwar has provided Digital Journal with an insight.
Anwar’s first comment is that the future playing field for Facebook will be tricky in terms of data regulations. He tells Digital Journal: “I see some risks to the valuation that could come from increased regulation around the management of its user data. But overall, I remain convinced that Facebook will overcome these challenges and its stock still has a lot of room to run.”
Despite this, and adverse publicity for Facebook, advertising remains strong. Anwar states: “So far, there has been no evidence that shows that controversies, such as the spread of fake news, Russian interference in the U.S. elections and the Cambridge Analytica scandal, have prompted advertisers to divert ad dollars.”
However, there are risks to Facebook from other social media sites. The first being Instagram, which according to Anwar: “Instagram reached 1 billion monthly active users in June. This platform is attracting new users faster than Facebook’s main site and is on track to exceed 2 billion users within the next five years. With a younger audience, Instagram is much more attractive to advertisers.”
There is also a challenge from WhatsApp: “In an announcement early this year, WhatsApp said it would begin allowing business accounts for the first time, a step that lays the groundwork for this free service to start making money for its parent.”
Despite the challenges and the stock market data, Anwar thinks that Facebook remains a company that has displayed considerable success: “The recent performance of Facebook suggests that the worst is over. There may be some more negative surprises, especially when the company is still in the middle of a major restructuring and many governments are still contemplating ways to strengthen online privacy regulation.”
Despite this, he sates: “But that shouldn’t discourage long-term investors to hold this tremendous growth stock in their portfolio. Facebook has a lot of firepower to deal with these temporary setbacks.”
