Facebook flops after warning of revenue slowdown, margin squeeze

Facebook published disappointing second quarter results late overnight as the social media giant's revenues and user numbers fell short of expectations, while profits margins contracted as its battles to improve data protection and combat fake news.

After a slowdown in revenue growth and contraction in operating margins, chief financial officer David Wehner warned that both factors would continue for some time.

“Our total revenue-growth rates will continue to decelerate in the second half of 2018, and we expect our revenue-growth rates to decline by high-single-digit percentages from prior quarters sequentially in both Q3 and Q4,” he said on the conference call. Wehner also said Facebook still expects expenses to grow 50% to 60% from last year.

Operating profit fell to 44% in the second quarter from 47% a year ago, and Wehner said it will slump to the “mid-30s” for more than two years.

The California-based company earlier reported an increase in revenues to $13.2bn from $9.3bn for the second quarter of the year, with net income climbing to $5.12bn from $3.89bn despite operating margins being squeezed to 44% in the quarter compared to 47% a year ago.

The social media firm reported daily active users up 11% year-over-year to 1.47bn but still below the consensus estimate of 1.49bn, as compiled by FactSet.

Earning per share of $1.74 were above analysts’ estimates of $1.71 per share, but revenues were short of the $13.36bn expected by Wall Street.

Facebook’s stock futures were down almost 19% to $177 ahead of Thursday's opening bell, pushed lower by comments from Wehner and others in a conference call.

The company also addressed the impact of the European General Data Protection Regulation which knocked off 3m of European daily active users from the platform.

Facebook chief operating officer Sheryl Sandberg said: "GDPR has not had a significant (ad) revenue impact, but we also recognise it wasn't fully rolled out this quarter.”

Chief executive Mark Zuckerberg said that it had been a solid quarter across all of the Facebook owned platforms and that the company had been working hard on improving security, data protection and combating fake news.

“As I’ve said on past calls, we’re investing so much in security that it will significantly impact our profitability,” Zuckerberg said. “We’re starting to see that this quarter.”

Earlier this year it was revealed by a whistleblower that political analysis Cambridge Analytica had used 87m Facebook users' profiles without consent to target American voters with political adverts for Donald Trump and other Republican candidates before the 2016 election.

Facebook remains under investigation by the US Department of Justice, the FBI, the Securities and Exchange Commission and the Federal Trade Commission.