The stock plunge was caused by Facebook’s announcement of their Q2 earnings, which was lower than expected. This announcement sent Facebook’s shares plummeting and led to CEO Mark Zuckerberg losing an estimated $6 billion in just hours.
In this article, we will be examining the factors that contributed to this sudden plunge and its consequences.
Overview of the stock plunge
On July 26, 2018, shares of Facebook stock plunged 20% after its second-quarter earnings report. This market reaction sent the company’s value down by an estimated $120 billion – representing a personal loss of over $6 billion for company founder and CEO Mark Zuckerberg.
The drop in Facebook’s market value came as a surprise to investors, who had been expecting the social media giant’s shares to at least remain steady. Instead, reports point to worries about slowing revenue growth, contributing to investor concerns and sparking the sell-off.
The reported revenue of $13.2 billion fell short of expectations, and Facebook slowed compared to previous quarters in terms of user growth and advertising income— two key sources of revenue for the social media firm. Facebook also forecasted that profit margins will shrink over the long term as costs grow.
Investors responded with disapproval, causing share prices to plummet rapidly – dropping below what they sold for during pre-IPO trading in 2012. Furthermore, total daily losses topped out at around $86 billion (exceeding those made by Apple Inc earlier this year). In response, Zuckerberg announced future projects expected to generate new revenue streams, including a translation service named “Talkmate,” which is confidentially being developed;. However, no clear details have yet been given on how it works or when it will be released publicly.
Causes of Stock Plunge
On the morning of July 26, Facebook shares dropped more than 8%, resulting in a massive $6 billion loss for Mark Zuckerberg and other shareholders. This dramatic plunge in stock has been attributed to a range of factors, including lowered expectations in Facebook’s future earnings and increased uncertainty about the company’s competitive position.
In this article, we will explore the various causes of the stock plunge in detail.
Facebook’s Privacy Breach
Mark Zuckerberg and his company were at the center of a worldwide controversy following a series of reports about how Facebook’s privacy practices had allowed user data to be misused by Cambridge Analytica. This controversy caused shares of the social network to plunge, resulting in a loss of $6 billion for Zuckerberg in just hours.
The Cambridge Analytica scandal was a major blow to Facebook, as it revealed that the platform had allowed third-party developers to access the personal data of millions of users without their knowledge or consent. The reports generated major public uproar, which caused Facebook’s share price to drop drastically, causing billions in losses for Mark Zuckerberg and other shareholders.
Since then, Facebook has implemented numerous changes and restrictions to its privacy policies and procedures and its platform features. These include two-factor authentication for user accounts, additional security checks for third-party applications, more transparent terms of service agreements with app developers, stricter ad targeting practices, and more detailed profiling data disclosure options for users. The social media giant also faces greater regulatory scrutiny from government regulators worldwide in response to these issues.
Market Reaction to Facebook’s Poor Performance
On Thursday, July 26, 2018, market reactions triggered a massive selloff of Facebook stock. Facebook Inc. shares suddenly plummeted by more than 20% after the company reported lagging user growth and rising expenses in its second-quarter earnings report. This resulted in the loss of $124 billion in market capitalization on a single day.
The brunt of this loss was shouldered by Facebook founder Mark Zuckerberg who lost approximately $6 billion in just a few hours as his net worth fell to around $67 billion. The sharp fall in share prices also wiped out three years of share value gains in just one day, as the company’s market cap fell below levels first reached when its stock was offered in 2012.
The selloff triggered another round of dramatic losses among other tech companies like Twitter Inc., Alphabet Inc., and Netflix Inc.. A total of $86 billion got wiped out from Facebook’s fellow FANG companies – with Amazon suffering the biggest blow at a drop of more than 6%. Other heavily traded tech names such as Microsoft Corp and Apple followed suit, experiencing their own steeper declines, respectively, with Apple closing lower by 4%.
Overall, investors were spooked by what caused the slump – worries about slowing growth for social media behemoth and mounting costs for data security and video content – leading many to hit the pause button on what has been a thriving sector.
Poor Investor Sentiment
Poor investor sentiment, or bearish sentiment, can cause a stock price to plunge.
Market participants fled Facebook shares, resulting in a steep 10% decrease in their market value and six billion dollars lost by its founder Mark Zuckerberg when the news of user data privacy breaches broke out on March 19.
This instance highlights how quickly negative sentiment can erode equity value when investors fear that a business will not be able to maintain its competitive advantage. Poor confidence in corporate fundamentals and longer-term prospects creates a rapid sell-off which exposes the market to greater volatility.
The disruption of trust between users and corporations is increasingly taking a toll on the market capitalization of leading technology firms as users patiently wait for companies to resolve their privacy issues fully.
Mark Zuckerberg loses $6 billion in hours as Facebook shares plunge
On July 25, Facebook’s stock prices plummeted, wiping out $6 billion from Mark Zuckerberg’s net worth in a matter of hours. In the wake of this stock plunge, analysts and investors are trying to piece together what caused this dramatic dip in the market.
In this article, we will explore the impact of the stock plunge and all the factors that contributed to this event.
Impact on Mark Zuckerberg’s Net Worth
The dramatic drop in Facebook’s share price had a major impact on Mark Zuckerberg’s net worth. The plunge – the number of shares equaling $6 billion of his entire stake in just hours on July 26, 2018 – was a massive setback for the world’s sixth-richest person and one of the largest one-day losses ever.
Zuckerberg, who still owned approximately 18 percent of Facebook’s stock before the plunge, saw his net worth drop from roughly $77 billion to $71 billion according to Bloomberg Billionaires Index. The tech mogul has lost over $20 billion since the peak market value of his shares in mid-July 2018.
The significant reduction may not impact Mark Zuckerberg directly due to his large wealth portfolio. However, if investors get spooked by this sudden drop and continue to sell off Facebook stock, even more losses can be expected for him as well as other major stakeholders.
Impact on Facebook’s Share Price
The dramatic plunge of Facebook shares on July 25, 2018, wiped out approximately $6 billion from the net worth of its founder, Mark Zuckerberg. The impact was felt globally, from investors and shareholders to analysts and journalists. Following the market close that day, FB shares dropped by 19%, representing the largest single-day drop in market value in U.S. history due to a single stock.
The shockwaves extended across multiple markets, with Wall Street adjusting for billions of dollars in losses and other technology companies’ share prices also affected. As a result, Facebook was temporarily replaced by Berkshire Hathaway as the fifth-largest company in U.S. stocks by market value.
The stock plunge could be attributed primarily to Facebook’s slowing user growth and its failures to identify possible consequences that data privacy violations may have triggered among users’ behavior or sentiment toward its services. Disappointing earnings reports released during the second-quarter of 2018 played a major role in exacerbating the situation and adding fuel to already hot investor sentiment around this issue of privacy concerns regarding potential misuse of personal data among social network users.
Conclusion
The Facebook stock plunge of 2018 was an event that could have been easily avoided with stricter regulations and proper oversight. Instead, investors were taken aback when Mark Zuckerberg lost $6 billion in hours after the shares showed significant drops.
Nevertheless, the stock market is still a volatile entity, and it is important for investors to be aware of all risks associated with investing. In the end, this particular plunge was caused by a variety of factors, with poor oversight and lack of regulations being two of the primary factors.
Summary of the Causes and Impact of the Stock Plunge
It is widely accepted that the Facebook stock plunge began following a quarterly earnings report which outlined two key issues. Firstly, the company reported an unexpected drop in revenue growth compared to the previous quarter. Secondly, Facebook also shared its plans to significantly increase investment for safety, security, and content analysis initiatives – this was seen to indicate long-term challenges for the company from a financial and operational perspective.
This announcement resulted in an immediate decline in share price, based on concerns over growth slowing down. Investors were also concerned about potential costs related to potential proposals such as the European Union’s General Data Protection Regulation (GDPR). This further weighed on share prices and resulted in Mark Zuckerberg seeing a loss of around $6 billion within hours of the announcement.
Overall, these two issues have created much uncertainty around Facebook’s future growth prospects and therefore have heavily impacted investor sentiment and market activity. Therefore it is clear that these two issues were major causes of the significant stock plunge experienced last week by Mark Zuckerberg and Facebook shareholders alike.
