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The social media giant Facebook is facing business problems due to a series of scandals. For the past two years, Facebook’s business was unaffected even after the company was repeatedly dragged into scandals. But the Silicon Valley company’s streak ended when it said that the accumulation of issues was starting to hurt its multibillion-dollar business and that the costs are set to continue playing out for months.
Facebook reported that growth in digital advertising sales and in the number of its users had decelerated in the second quarter. The company’s leaders, including its chief executive, Mark Zuckerberg, added that the trajectory was not likely to improve anytime soon, especially as Facebook spends to improve the privacy and security of users. Facebook has grappled with months of scrutiny over Russian misuse of the platform in the 2016 American presidential campaign and the harvesting of its users’ data through the political consulting firm Cambridge Analytica. The results were among the first signs that the issues had pierced the company’s image and would have a lasting effect on its moneymaking machine.
In response, Facebook’s stock tumbled more than 23 percent in after-hours trading, erasing more than $120 billion in market value in less than two hours. If those losses hold up through regular trading, the one-day stock decline will be the biggest in Facebook’s history.
Daniel Ives, chief strategy officer head of technology research for GBH Insights, a marketing research firm said that this is a fork-in-the-road situation for Facebook. He said the challenges included regaining public trust as well as increasing the number of people joining Facebook and the time they spent on the platform. Facebook reported a 42 percent increase in revenue and a 31 percent jump in profits for its second quarter, compared with a year earlier. But the revenue of $13.2 billion missed Wall Street estimates of $13.4 billion. In addition, Facebook said its daily active users rose 11 percent from a year earlier to 1.47 billion, compared with 13 percent growth in the previous quarter.
Zuckerberg said profits would most likely take a further hit because the company planned to spend more on security. And the chief financial officer, David Wehner, said revenue growth would substantially decline for the rest of the year, partly because Facebook planned to give people more options with their privacy settings, including letting them limit the kinds of ads they saw. Facebook has also said it wanted to hire 20,000 people by the end of 2018 to help review content posted on the site and to work on its security team. The company’s headcount has already risen 47 percent since last year, to 30,275.
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