Facebook shares jumped in April after CEO Mark Zuckerberg told reporters that he had not seen a noticeable change in user behavior or advertiser buying patterns in the wake of the Cambridge Analytica data scandal.
“But, look, it’s not good,” Zuckerberg told reporters at the time. He said Facebook users should assume they have had their public information taken by third parties. The company believes most of its users who had a specific search function enabled have had their profile data scraped.
“Even if we can’t really measure a change and the usage of a product, or the business or anything like that, it still speaks to people feeling like this is a massive breach of trust and that we have a lot of work to do to repair that,” Zuckerberg said at the time, according to a CNBC report.
Fast forward three months. On Thursday, Facebook lost about $119 billion in stock market value, the largest one-day market-cap loss by any company in U.S. stock market history. The name plummeted nearly 19 percent that day, with losses continuing on Friday and Monday of this week.
If the social network’s disastrous revenue guidance becomes “the new normal”, Facebook should not be considered a growth stock anymore, said CNBC’s Jim Cramer.
“You have a company that has expenses going up dramatically … (and) revenues are decelerating dramatically,” said Cramer, whose charitable trust had previously cut its Facebook holdings in half. “That’s the prescription for a short sale.”
So about that breach of trust. Facebook investors are suing the social network, Zuckerberg and CFO David Wehner after a poor earnings report wiped out nearly $120 billion of shareholder wealth, Reuters reported.
The complaint was filed by shareholder James Kacouris in Manhattan federal court and accused Facebook of making misleading statements about or failing to disclose slowing revenue growth, falling operating margins, and declines in active users.
“Kacouris said the marketplace was ‘shocked’ when ‘the truth’ began to emerge on Wednesday (July 25) from the Menlo Park, California-based company. He said the 19 percent plunge in Facebook shares the next day stemmed from federal securities law violations by the defendants.”
Facebook said in its earnings report last week that it anticipated slower revenue growth and slimmer margins in the future, in part to improve the safety and privacy of the platform. That forecast ignited a massive Wall Street sell-off, Wall Street Journal reported.
Shareholders often sue U.S. companies after unexpected stock price declines, especially if there’s been a massive loss of wealth, according to Reuters.
In last week’s earning call, Zuckerberg said, “We run this company for the long term, not for the next quarter.”
Facebook reported that 2.5 billion people around the world use at least one of its applications including Messenger, WhatsApp, and Instagram. But the costs of doing business have risen from about $4.9 billion to $7.4 billion, Washington Post reported.
In short selling, traders can bet against a company by selling shares they don’t own and buying them back at a lower price.
This won’t be the first time in 2018 that Facebook gets sued by disappointed investors. Investors sued Facebook in March for a stock slump after the revelation that users’ data had been used without permission by a research firm connected to Donald Trump, LA Times reported.
