What happened on Facebook's nightmare conference call that
wiped out nearly $150B in market value in 90 minutes?

• Facebook's stock dropped by a whopping 24% after it announced its second-quarter financial results on Wednesday.
   
• The plunge came after Facebook executives said the company expected a significant slowdown in its revenue growth in the years ahead.
   
• Here's what happened during the disastrous conference call with analysts that saw Facebook's value fall by as much as $148 billion.

Facebook CEO Mark Zuckerberg saw shares of his company's stock plunge on Wednesday after it reported earnings and discussed them with analysts.

Facebook CEO Mark Zuckerberg announced a new feel-good statistic on a conference call with financial analysts on Wednesday: Some 2.5 billion people — a third of the world's population — now use at least one of Facebook's products each month.

But that staggering statistic wasn't enough to distract investors from the bad news the company had to share: It expects significantly decreased revenue growth rates and operating margins in the years ahead.

The proof was in Facebook's stock, which during the call was down as much 24% from its price at the close of regular trading. In fact, the call with Zuckerberg and his colleagues only made things worse for Facebook's share price.

An hour before the call started, Facebook announced disappointing second-quarter financial results. The company missed Wall Street's expectations on both revenue and its number of daily and monthly active users.

Its stock fell more than 8% on that news. But it stayed relatively steady after that, at least until the call started and David Wehner, Facebook's chief financial officer, began discussing the company's financial outlook. Wehner warned that Facebook expected its revenue growth to slow from the 42% pace it posted in the second quarter and its operating margins to fall from 44% in the period.

"Looking beyond 2018, we anticipate that total expense growth will exceed revenue growth in 2019," he said. "Over the next several years, we would anticipate that our operating margins will trend towards the mid-30s on a percentage basis."

Facebook's stock really fell off during the company's earnings call

During the call, Facebook's stock dropped precipitously. Within minutes it was down 15%, then 18%, then 24%.

At the stock's lowest point, more than $148 billion of the company's value — significantly more than the entire market cap of IBM ($134 billion) — had been wiped out.

Facebook's shares later rebounded, but at the time of this writing they remained deep in the red, down by a little more than 20%.

Facebook's stock plummeted in after-hours trading on Wednesday.

Three key factors are driving Facebook's expected revenue growth decline, Wehner said.

First, Facebook is battling currency headwinds. Its overseas revenue got a boost in dollar terms as the dollar appreciated against other currencies last year. But the dollar's decline this year will reduce the dollar value of Facebook's foreign revenue.

Second, the company is placing more emphasis on Stories, the packages of posts and photos users can share with their friends that generally disappear after 24 hours. The company doesn't make as much money from Stories as it does from its News Feed and other features on its site.

And then there's an increased focus on privacy and security, something that Zuckerberg previously warned could harm the company's profitability. New options Facebook is offering users to opt out of certain data collection — inspired in part by a new privacy law in Europe — could lead to less advertising revenue.

Facebook's expected decline 'is beyond anything we've seen'

As analysts pounded Facebook executives on the call about the company's expected deterioration in its financial results, its stock continued to sink.

Toward the end of the call, a Jefferies analyst seemed astonished at the scale of the growth slowdown, saying it "seems the magnitude is beyond anything we've seen."Wehner warned analysts not to expect the company's financial results to get better anytime soon.

The company is likely to post subpar operating margins for "several years," he said — "more than two, less than many."

It's a staggering drop-off for Facebook and flies in the face of Wall Street's expectations. Earlier Wednesday, its stock hit a new all-time high of more than $218 a share. A few short hours later, that already seems like a distant memory.

Article by Rob Price, Business Insider:
https://www.businessinsider.com/facebook-stock-drops-20-plus-nightmare-earnings-call-2018-7?amp%253Butm_medium=referral

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