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Fallen Angels: A look at Facebook and Twitter stock declines

Social media platforms Facebook (FB) and Twitter (TWTR) would make a good pair now. Both reported their earnings this week, both won some and lost some in terms of their metrics, and both of them saw massive stock declines (about 20%) following their results announcement. Not to mention, both are stuck in pretty much the same mess now with regards to the malicious content on their platforms. Let’s take a look at these two fallen angels and what purgatory or salvation lies ahead of them.

Facebook

Facebook disappointed Wall Street with its second quarter results on Wednesday, missing revenue expectations and projecting profit margin declines and slow growth for the future. Investors did not like this and they made their feelings very clear.

Facebook’s shares tanked after the release, dropping to nearly 25% in aftermarket hours. The tumble continued on Thursday and the stock dropped 19%. For Facebook stock, this marked the biggest drop ever seen by Wall Street on a single day. The stock market is no stranger to huge one-day market cap losses and most of the big guys like Apple (AAPL), Amazon (AMZN) and Alphabet (GOOGL) have been there but Facebook outdid them all, and not in a good way.

Related: Facebook misses on topline in Q2; stock crashes 9%

Facebook lost around $120 billion in market value, went from around $630 billion down to nearly $510 billion and CEO Mark Zuckerberg saw his fortune drop by about $16 billion. The stock is yet to recover from the crash.

Unlike rival Twitter, Facebook has got a lot more dirt stuck to its shoes. Cambridge Analytica, false news and election-meddling propaganda, new privacy laws – all the Ghosts of Scandals Past came back to haunt Facebook and ended up taking advertising revenues down and sending expenses up. Expenses increased due to new measures adopted for the protection of user data and privacy while new privacy laws under GDPR, which allowed users to change their advertisement settings, hit ad revenues.

Facebook expects this slowdown to continue and if GDPR finds its way into the US, as many people would like it to, ad revenues will decline further. The revenues from emerging markets and its Instagram application were not enough to salvage Facebook’s results. Although Facebook managed to recover quickly from the declines seen at the time of the CA scandal and Zuckerberg’s Congressional testimonies, this time the giant got hit really hard.

 

(Image Courtesy: Pixabay)

Twitter

Twitter reported results on Friday, beat top-line expectations and saw growth in advertising revenues and profits pushed by product improvements and live video streaming events. However, the micro-blogging website announced a decline in monthly usage due to the removal of fake accounts, which did not go down well with investors.

Shares fell 12% during premarket hours, tumbled to 17% in early trading and then plummeted close to 20%. Like Facebook, Twitter also had faced severe criticism for failing to tackle hate speech and fake news on its platform and has recently come under fire for shadow-banning, i.e. attempting to mute conservative voices on its site. Twitter said it purged a large number of fake accounts and would continue to do so as improving the health of its platform was its priority.

Related: Twitter tumbles on slow user growth in Q2

The recent trends at Facebook and Twitter have raised concerns among investors whether both platforms would be able to maintain or grow their user count and advertising revenues in an environment of tougher laws, changes in user trends due to stricter content quality control or lack of appealing content, and other such issues. Facebook and Twitter will have to convince their stakeholders and advertisers that they can.

With many people opting to take a break from social media due to the anti-social behavior on it, is the age of social media coming to an end? Will Facebook and Twitter go extinct in a few years from now? Perhaps not. Many experts believe that in this age of technology, behemoths like Facebook and Twitter will prevail. No matter how big the hit, they will pick themselves up and move on. Like every other storm, this too shall pass.

Facebook Q2 2018 Earnings Call Transcript

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