Facebook rout dwarfs Cyril Ramaphosa's investment drive
The eye-watering decline in the social media giant's market cap left CEO Mark Zuckerberg almost $16bn poorer
President Cyril Ramaphosa thinks he needs up to five years to accumulate $100bn (about R1.3-trillion) in investments.
Facebook lost that amount and more in a matter of hours after the social media behemoth said its growth was slowing.
Facebook’s shares were trading at a high on Wednesday, but collapsed as much as 24% in after-hours trade after the company said second-quarter earnings missed expectations and investors should temper their growth forecasts.
The stock pared its losses a little, to close 19% weaker in regular trading on Thursday, wiping $120bn off its market cap in the end. That is roughly the equivalent of a General Electric or a 3M, and is the biggest one-day decline in market cap in American history.
The drubbing left CEO and founder Mark Zuckerberg $15.9bn poorer, with a personal fortune of about $71bn.
Prompted by a downbeat earnings call with investors, the Nasdaq-listed company’s market value plummeted by about $151bn at one point on Wednesday — roughly half of SA’s GDP and more than the value of Africa’s biggest company, Naspers, or Ramaphosa’s five-year investment target.
This was despite Zuckerberg saying that 2.5-billion people — a third of the world’s population — were now monthly users of Facebook’s platforms, which include Messenger, Instagram and WhatsApp.
After-hours trading prices are based on blocks of stock swapped between investors, "so there is often a bit of wild action going on, and hedge-fund traders hitting the exit button", Vestact CEO Paul Theron explained in a note to clients on Wednesday.
If the last after-hours price of $173.50 had held through normal trading on Thursday, the decline would have been the biggest one-day stock wipe-out in market history, Theron said, and that would set Facebook’s shares back to where they were three months ago.
"The second-quarter financial results were a bit disappointing, to be honest," he said.
Of more concern to investors was that Facebook’s chief financial officer, David Wehner, warned that revenue growth would slow from 42% in the second quarter ended June, and that operating margins would dip below 40% partly because the company had to invest heavily in security and data privacy.
But Theron said Facebook’s management was known for being conservative in its forecasts. "It’s part of their hipster way of managing expectations."
Unlike many other analysts, Theron said long-term investor Vestact was still bullish on Facebook, partly because "advertisers are very keen to work with them".
Facebook did not blame its damped outlook on the scandal over the misuse of personal information of about 87-million users – mostly in the US — by Cambridge Analytica, a political consultancy that boosted US President Donald Trump’s election campaign. As many as 96,134 people in SA were "potentially affected".
Zuckerberg said on Wednesday’s call that upcoming elections in Brazil, India and the EU would be "real tests for Facebook". He was confident the company would "get this right" given its faring in recent elections "where our systems found and removed thousands of fake accounts, pages and groups that violated our policies".