Facebook Inc. chief executive Mark Zuckerberg’s fortune took a more than $15-billion hit on Thursday, as the social media company suffered the biggest one-day wipeout in U.S. stock market history a day after executives forecast years of lower profit margins.
At least 16 brokerages cut their price targets on Facebook after chief financial officer David Wehner startled an otherwise routine call with analysts by saying the company faced a multiyear squeeze on its business margins.
That “bombshell,” as one analyst termed it, played into concerns on Wall Street that Facebook’s model could be under threat after a year dominated by efforts to head off concerns over privacy and its role in global news flow.
Shares closed down almost 19 per cent at US$176.26, wiping more than US$120-billion off the company’s value, or nearly four times the entire market capitalization of Twitter Inc.
“Over the next several years, we would anticipate that our operating margins will trend toward the mid-30s on a percentage basis,” Mr. Wehner said on a conference call with analysts.
Facebook’s margin fell to 44 per cent in the second quarter from 47 per cent a year ago as it spent heavily on security and initiatives to persuade users the company was protecting their privacy.
The company also said revenue growth from emerging markets and the company’s Instagram app, which has been less affected by privacy concerns, would not be enough to repair the damage.
The impact on the rest of the FAANG group of high-flying tech stocks was marginal.
Shares in Alphabet closed up 0.7 per cent, while those in Apple Inc. fell 0.3 per cent and Netflix Inc. closed barely higher. Amazon.com Inc. was up 2.3 per cent following its own results after the bell on Thursday.
Of 47 analysts covering Facebook, 43 still rate the stock as “buy,” two rate it “hold” and only two rate it “sell.” Their median target price is US$219.30.
MoffettNathanson analysts called the company’s forecast “either the new economic reality of their business model or a very public act of self-immolation to stave off further regulatory pressure.”
Rahul Shah, chief executive officer at Ideal Asset Management in New York, a Facebook shareholder, said executives were trying to reset expectations about growth, but the outlook caught Wall Street by surprise. “A lot of value investors might jump in and support the stock at these levels … it’s probably a good buying opportunity for a long-term investor, but I wouldn’t be jumping in with both feet today,” he said.
The more than US$15-billion in net worth that Mr. Zuckerberg lost on Thursday is roughly equal to the wealth of the world’s 81st-richest person, currently Japanese businessman Takemitsu Takizaki, according to Forbes real-time data.
Jake Dollarhide, CEO of Longbow Asset Management in Tulsa, Okla., in recent years has trimmed – but not eliminated – the amount of Facebook shares in his clients’ accounts, and he said he sees the company as a three-year investment.
“We own it for its leadership in the tech industry,” he said. “It’s the F in FAANG, but what’s to say that, 10 years from now, Facebook isn’t the next MySpace and something else has taken its place?”