Facebook shares plunge on earnings news
Facebook shares plummeted almost 19 percent Thursday, erasing over $122 billion from the social media giant’s market value.
The sharp stock decline came a day after Facebook, one of the largest publicly traded U.S. companies, reported disappointing second-quarter earnings.
That means that in one day, just the decline in Facebook’s market value is roughly the entire market value of McDonald’s or Nike, give or take a few billion.
And it far exceeds to total market value of major U.S. multinational corporations such as General Electric, Eli Lilly or Caterpillar.
The company still has a total market value of more than $503 billion, which exceeds the annual gross domestic product of countries like Poland, Belgium and Iran.
Of particular concern to investors was Facebook’s warning that revenue growth rates would continue to slow sharply in the coming quarters.
“Management commentary about decelerating topline growth during a quarter where the company fell short of ad revenue for the first time is what has led to the stock’s after-hours performance,” Goldman Sachs analysts wrote in a note to clients, referring to the initial market reaction to the earnings report.
Facebook has been one of the most influential stocks in recent years. Its losses dragged down the S&P 500’s technology sector. Because the S&P 500 is weighted by market size, large companies exert the greatest influence.
There were signs that investors viewed Facebook’s woes as specific to the company. Shares of Apple, the largest company in the world by market value at more than $950 billion, were down only slightly at day’s end.
It was unclear whether Facebook’s sharp drop would derail a stock market that has been gaining traction this month.
The S&P 500 has climbed more than 6 percent this year, despite a number of concerns, including rising trade tensions between the United States and its largest trading partners and the Federal Reserve’s increases in interest rates.
The S&P 500 is only about 1 percent below its high hit on Jan. 26.
On Thursday, markets again showed their resilience. The S&P 500 was down only slightly despite the carnage in Facebook shares. In recent weeks markets have rallied as investors took heart in second-quarter earnings reports.
Once the results are tallied, second-quarter earnings for companies in the S&P 500 are expected to have grown more than 20 percent, compared with the same period last year, reflecting the strength of the U.S. economy and the impact of corporate tax cuts.
Still, the sheer size of Facebook’s fall became a focus for investors. It was one of the largest single-day losses, in terms of market value, on record for a single stock.
But in a sense, the large decline shouldn’t be surprising. In recent years, valuations of the largest technology firms have surged.
Apple is foremost among them. But Amazon, Google’s parent company, Alphabet, and Microsoft are not far behind, with market values of more than $800 billion. And even after the sharp decline Thursday, Facebook is the fifth-largest publicly traded company, by market value.