As soon as the management of Facebook Inc. finished with its earnings call for the second quarter, the share price plunged by as much as 24 percent in extended trading. In the process, the social media company lost US$130 billion of its total market capitalization – more than half of Singapore’s June 2018 foreign reserves of US$288 billion!

Apart from the revenue miss and lower daily user counts in Europe, there were three reasons cited by Chief Financial Officer (CFO) David Wehner that resulted in the near-capitulation.

1. Declining Revenue
The CFO warned shareholders that revenue growth will decline by high single-digit from previous quarters in the next two quarters of this year.

In explaining the decline, Wehner said,”We plan to grow and promote certain engaging experiences like Stories that currently have lower levels of monetization, and we are also giving people who use our services more choices around data privacy which may have an impact on our revenue growth,”

He also cited currency fluctuations as a reason that would hit earnings for the rest of the year.

2. Weaker Margins
In addition to lower revenue, Wehner expects margins to decline with operating margins coming in at the “mid-30s on a percentage basis. This pales in comparison to the 44 percent in the already-poor second quarter.

The lower margin is attributable to a diversification of markets and investments in products such as the long-form video format. Furthermore, spending in areas such as safety and security cost the company billions of dollars.

“We think that’s the right thing to do for the business in terms of ensuring the community, safety and durability of the franchise,” Wehner said.

3. Regulatory Changes
The Cambridge Analytica privacy scandal that blew up in its face forced Facebook to make several privacy policy changes. Regulatory changes in the European Union allowing users more control over online data resulted in changes too.

The effects of the changes in Europe was felt as early as May as users declined. Going forward, Facebook expects the changes to continue impacting the company as the full effects have yet to be felt.

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