Facebook’s market value shrank by $119 billion on Thursday after founder Mark Zuckerberg reported slowing audience and sales growth as the social media pioneer contended with new privacy rules in Europe and data-security concerns closer to home.
Shares of the Menlo Park, Calif.-based company dropped 19 percent to $176.26 at the close of New York trading, leaving it valued at $510.4 billion, after revenue gains slowed to 42 percent in the second quarter and executives warned of more deceleration to come.
Profit margins around 45 percent today may shrink to 35 percent, the company said, as Facebook pours money into developing new products like video while improving technological safeguards after the platform’s misuse in the 2016 U.S. presidential campaign.
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“We’re investing so much in security that it will significantly impact our profitability,” Zuckerberg, who’s also chief executive officer, said on Wednesday. “In light of increased investment in security, we could choose to decrease our investment in new product areas, but we’re not going to, because that wouldn’t be the right way to serve our community and because we run this company for the long term.”
Facebook and rival platforms like Twitter and YouTube are under a spotlight with U.S. elections a little more than three months away. The three are monitoring their services closely to prevent false articles and posts like those used to sway — and inflame — voters in the campaign where President Trump won an unexpected victory against Democrat Hillary Clinton.
In addition, Facebook has grappled with fallout from its disclosure that a Trump campaign consultant, Cambridge Analytica, improperly gained access to information on 87 million of its users. In the aftermath, Zuckerberg testified before two congressional committees, promising to better protect user information.
Those efforts, combined with Europe’s new General Data Protection Regulation that requires companies to tell users how their data is being shared and obtain their consent beforehand, weighed on audience development in the three months through June, Zuckerberg said.
Average daily users were flat in North America and down 3 million in Europe, said Eric Sheridan, an analyst with Swiss lender UBS, and advertising revenue grew less than investors expected.
Total sales still climbed to $13 billion, the Menlo Park, Calif.-based company said, and average daily users worldwide reached 1.47 billion per day. Net income grew 31 percent to $5.1 billion.
“Overall, this is a critical year for Facebook,” said Zuckerberg, who noted the introduction of products like Instagram’s IGTV and fundraising tools on the company’s signature platform along with progress curbing abuse.
Among Facebook’s new security mechanisms are artificial intelligence capabilities that removed thousands of fake accounts in the run-up to the Mexican presidential election earlier this year as well as votes in France, Germany, and Alabama, Zuckerberg said.
Additionally, users are now able to see the identity and location of advertisers running political spots on Facebook as well as when specific pages were created and who paid for them, said Chief Operating Officer Sheryl Sandberg.
“The vast majority of ads on Facebook are run by legitimate organizations, from small businesses looking for new customers to advocacy groups raising money for their causes, but we’ve seen that bad actors can misuse our products, too, so we’re erring on the side of transparency,” she said. “We think it’s important to apply this policy to more ads rather than fewer.”
