Facebook user numbers disappoint, stock nosedives

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The Menlo Park, Calif. -based company reported second-quarter earnings that bested analyst estimates, but the results fell short of projections for revenue and daily active users.

The update showed the key metric of monthly active users rose 11 per cent to 2.23 billion, below most estimates of 2.25 billion, while daily active users grew a weaker-than-expected 11 per cent to 1.47 billion.

Shares in Facebook, which have risen about 23 percent this year, fell 8.6 percent to $198.71 in trading after the bell as investors reacted to the results.

Revenue, fueled by mobile advertising sales, increased 42 per cent to US$13.2 billion in the quarter, Facebook said Wednesday in a statement.

While Zuckerberg has vowed to address the problems through major changes to its business practices and investments in new resources, analysts that cover the stock have maintained a positive outlook, insisting that it would essentially be business as usual for Facebook's lucrative advertising operations.

"They're talking about currency headwinds, but more we think it's due to slower user growth given GDPR and more focus on privacy", Morningstar analyst Ali Mogharabi said.

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The launch in February 2016 was particularly contentious because Pyongyang had conducted a nuclear test just a month earlier. A satellite image released by 38 North on Monday showing the partial dismantling at the Sohae launch site in North Korea .

"We expect our revenue growth rates to decline by high single digit percentages from prior quarters sequentially in both Q3 and Q4", Chief Financial Officer David Wehner said. The company's user base flatlined in its biggest market, the US and Canada, at 185 million daily users, while declining 1% in Europe to 279 million daily users. The company further warned that the toll would not be offset by revenue growth from emerging markets and Facebook's Instagram app, which has been more immune from privacy concerns. In mid-March, The New York Times reported that Cambridge Analytica, a voter-profiling company, had effectively harvested the data of up to 87 million Facebook users. Overall, average daily users increased 11% from the period a year earlier.

Separately Wednesday, Facebook general counsel Colin Stretch, who advised the company through a series of probes and investigations into data privacy, said he would be leaving for personal reasons.

Gene Munster, a venture capitalist at Loup Ventures, said in an email that Facebook is "entering a new period" where declining user growth will translate to slower revenue growth.

Instagram has grown to 1 billion monthly users from 600 million in late 2016, while Facebook's two messaging apps, Messenger and WhatsApp have each reported well over 1 billion monthly users. Together, the entire Facebook suite of products has 2.5 billion unique monthly users, the company disclosed for the first time.

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.

"The company has a track record of resetting revenue growth and expense expectations only to turn around and exceed those expectations the following quarter", Munster wrote.

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