Boycott Facebook Before it Sinks

If you’ve taken a stroll around Melbourne CBD recently, you’ll have noticed something unusual about some of the billboard advertisements.

They’re not selling any products or services. Or trying to get you to upgrade. Because chances are you already have their product. Or should I say, you are their product.

Their real intention is psychological — a desperate attempt to stop you from boycotting their business. Because without all of us, they’d have nothing.

I am of course referring to social media. In a bid to win back the hearts of Australians, after the Cambridge Analytica scandal tarnished their reputation, Facebook has started selling Australians trust.

Running an ‘apology campaign’ with billboards displaying slogans like ‘Fake news is not our friend’ and ‘Fake accounts are not our friend’, Facebook is trying to claw their way back onto the pedestal they once occupied as a trusted social media site.

They even released an ad that will play on television and in movie theatres throughout July, which covers all of Facebook’s past mistakes and how they are going to rectify them. The ad concludes by saying:

That’s all going to change. From now on, Facebook will do more to keep you safe and protect your privacy.’

But it appears their attempt at reconciliation hasn’t been successful.

On Thursday, Facebook posted the largest one-day loss in market value by any company in US stock market history. Their market capitalisation dropped by $119 billion, falling to $510 billion, while their stock price plummeted a whopping 19%.

As you can see in the chart below, in the history of the stock market, no company has ever posted a market value loss of over $100 billion in just one day. That loss is also nearly the entire market value of giants like Nike, IMB and McDonalds. So when it comes to colossal mess-ups, Facebook really takes the cake with this one.

Market cap losses in big cap stocks 27-07-18

Source: FactSet

[Click to open new window]

The reason for the dramatic drop was in part due to Facebook reporting weaker than expected revenue results for the second quarter, as well as a disappointing drop in global daily active users. Facebook has also said that they expect their revenue growth rate to slow in the second half of this year.

Looking at Facebook’s fall from grace, we are reminded of other companies who experienced similar declines as their respective bubbles began to burst.

On 22 September 2002, Intel lost $US90.74 billion in one day after the dot com bubble burst. During that same year, Microsoft’s market cap also suffered a $80 billion one-day loss.

What Intel, Microsoft and Facebook have in common is that they were all considered reliable, transparent, innovative companies. But as we’ve seen throughout stock market history, all it takes is one slip up to lose the trust of the public. And once it’s gone, it’s very hard to get it back.

Facebook’s Chief Financial Officer, David Wehner, is well aware of this fact. As a result, you clearly can see his scepticism when it comes to Facebook’s financial future:

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 the third and fourth quarters.

Unless Facebook comes up with another strategy soon, one that doesn’t involve unconvincing bus stop signs which were unlikely to change anyone’s mind, they could be in trouble. For the foreseeable future, social media users around the world are likely to remain sceptical about Facebook’s ability to keep their data safe and present news that is balanced and backed up by evidence.

There is a chance that this extreme drop will be corrected soon and Facebook could bounce back to normal. But most likely, the company will be feeling the effects of their very public scandals for a long time to come. So if you’re thinking of investing in tech infrastructure, perhaps it’s best to avoid a sinking ship.

This week in Markets & Money:

Despite all of Donald Trump’s shortcomings, he has really earned his reputation as ‘Teflon Don’. No matter what blunders he makes, nothing negative seems to stick to him. As Ryan wrote on Monday, Trump’s poll results have been consistently positive. However, he has thrown the whole world order into chaos. Which will no doubt have an effect on the markets…

To learn more, click here.

Then on Tuesday, Terence wrote about the importance of reading charts. You don’t have to know everything about a stock or a company. But you do need to be following the price movements on the weekly and monthly charts. If you can do that, then you’ll be way ahead of the investing curve.

To read the full story, click here.

Trump is making waves in the economies of the world. And now the ‘Trump Effect’ is taking hold of the US dollar. As Ryan wrote on Wednesday, we could be on the verge of a currency war…

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In case you haven’t been counting, it’s been 621 days, 10 hours and 30 minutes since Trump won office. And it’s also the amount of time since the position of US Ambassador to Australia has been left vacant…

In the midst of Trump’s trade war, is our mateship with the US over? Are we no longer sitting in the middle of a political and economic sweet spot?

To read the full story, click here.

Just because Trump is busy disrupting markets and ramping up worldwide tensions, it doesn’t mean you can’t profit from it. Love him or hate him, there are two important lessons in his 1987 book The Art of the Deal that you should consider applying…

Find out more here.

Until next week,

Katie Johnson,
Editor, Markets & Money

Katherine Johnson, usually going by just ‘Katie’, is a member of Port Phillip Publishing’s editorial team, as well as the Editor of the Saturday edition of Markets & Money. Katie works with all of your editors to maintain the quality of their research and analysis. In her Saturday Markets & Money articles she specialises in cryptocurrency and technology stories, and brings you a recap of the week from your other Markets and Money editors.

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