Facebook Hit With Lawsuit After Historic Stock Plunge

Sean Reid
July 30, 2018

Facebook Inc and its chief executive Mark Zuckerberg have been sued in what could be the first of many lawsuits over a disappointing earnings announcement by the social media company that wiped out about US$120 billion (S$163.4 billion) of shareholder wealth.

The company's stocks dropped to $176.26, an overall 19 percent decrease in market value. At the time of writing, the company's shares trade at $175, while only a week ago they stood at over $210.

The more than $15 billion in net worth that Zuckerberg lost on Thursday is roughly equal to the wealth of the world's 81st-richest person, now Japanese businessman Takemitsu Takizaki, according to Forbes real-time data. The lawsuit was filed by a shareholder of the social networking giant.

During a routine call with analysts, Facebook's chief financial officer, David Wehner, startled brokerages by claiming the company faced a multi-year financial squeeze in the near future. The sell-off followed an earnings report showing growth in users and ad revenue had been slower than expected.

It was the second time Facebook stock took such a dramatic plunge.

Some analysts said Facebook's issues would not be easily resolved. Facebook revenue is still growing at a rate double that of Twitter.

Facebook has faced dozens of lawsuits over its handling of user data in a scandal also concerning the United Kingdom firm Cambridge Analytica. Scott Kessler, a representative from CFRA Research commented on the issue: "Legal/regulatory developments have led to changes meant to support FB's platform and users, but they will notably restrain growth and profits for at least the next couple of quarters, in our opinion". People are switching to a functionality that is less monetizable. There are more than 2.5 billion active users of Facebook that provides unique value for investors as well as advertisers.

Both the slower growth forecast and heavier spending reflect problems largely of Facebook's own making. The number of 1.47 billion users a day on average is still astounding for a company of this type.

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