Facebook Inc saw the first signs of user disenchantment in the midst of public scandals over privacy and content, with second-quarter revenue and average daily visitors missing analysts' projections.
In addition, Facebook said its daily active users rose 11 percent from a year earlier to 1.47 billion, compared with 13 percent growth in the previous quarter. But the results followed a period in which data-privacy issues came under harsh scrutiny, with Chief Executive Officer Mark Zuckerberg testifying before U.S. Congress for hours on the company's missteps.
Facebook reported a 42 percent increase in revenue and a 31 percent jump in profits for its second quarter, compared with a year earlier.
Worldwide daily user growth for Facebook's namesake service slid for its sixth straight quarter, bringing it to almost 1.5 billion users in the second quarter. Analysts projected US$13.3 billion. The legislation, known as the General Data Protection Regulation, cost Facebook about 1 million users in Europe, he said. Facebook's daily and monthly user counts were up 11 percent year-over-year, confirming that the momentum of its business is still overpowering its PR problems that took place prior to the company publishing these reports. Instagram's business model is so far the most mature, and likely contributed meaningfully to the company's revenue in the quarter, analysts have said, though Facebook doesn't break out sales for the app.
Shares plunged as much as 24 percent after Chief Financial Officer David Wehner said revenue growth rates would decline in the third and fourth quarters.
Wehner said quarterly revenue growth would be closer to 30 percent the rest of the year.
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Facebook also had 185 million North American DAUs and 279 million European DAUs, below the FactSet forecasts of 185.4 million and 279.4 million respectively. The company's user base flatlined in its biggest market, the USA and Canada, at 185 million daily users, while declining 1% in Europe to 279 million daily users.
The earnings call that cast serious doubt about Facebook Inc.'s seemingly unstoppable growth started normally enough.
Pivotal Research Group analyst Brian Wieser, who has a sell rating on the stock, says there are limits to growth in digital advertising, even for Facebook. Additionally, its daily active users-to-monthly active users ratio was held at 66 percent, showing that users were still hooked on using the social network. "This is a clear inflection point for Zuckerberg & Co.as the company's advertising fortress and MAU metrics still look "well intact" despite the massive potential headwinds caused by Cambridge and the overall privacy worries (GDPR) in Europe although challenges remain".
Still, Zuckerberg assured investors that Facebook continues to see growth on its core platform, as well as its other properties, which include Instagram, WhatsApp and Messenger.
Zuckerberg said Wednesday that he was hopeful Facebook would be able to limit disinformation and fake accounts, and that the company was able to do so in elections this year in France, Mexico and Germany. They were also expecting 2.25 billion monthly active users for the quarter.