may not be totally immune from controversy after all.
The social-media titan, which has thus far shown few effects from the negative headlines in recent months, reported weaker-than-expected revenue growth for the second quarter and warned about slowing sales growth in the future, sending its stock price sliding in after-hours trading.
Facebook shares, which had climbed steadily in recent weeks and touched record highs earlier on Wednesday, dropped 24% to $165 in after-hours trading.
The earnings released Wednesday marked the first full quarter of financial results since the scandal broke over Facebook’s privacy practices. Since then, the firm has faced heightened scrutiny over all aspects of its business from lawmakers, regulators and reporters, forcing what one of its senior executives called “the biggest cultural shift” in the past decade inside the company.
The turmoil hasn’t scared off large numbers of users or advertisers, but the second-quarter results showed that Facebook’s growth is slowing, including in some of its most lucrative markets.
Daily active users in the U.S. and Canada held steady at 185 million from the first three months of the year and up slightly from a year ago. Facebook’s daily user base in Europe fell slightly to 279 million accounts from 282 million in the prior quarter. The decline, analysts said, may have stemmed from a tough new European privacy law that went into effect in the second quarter.
The results “showed growth but geographically have pockets of softness,” said
head of technology research at GBH Insights.
For the second quarter, Facebook reported earnings per share of $1.74, up from $1.32 a year ago. Revenue increased 42% to $13.23 billion. Analysts, on average, expected earnings of $1.72 a share on revenue of $13.36 billion, according to Thomson Reuters.
The last time Facebook missed analyst estimates for revenue was in the first quarter of 2015.
Facebook’s global reach and impact on the world have been under scrutiny since the 2016 U.S. presidential election, when it attracted criticism for allowing fabricated news articles to flourish on the site. In the fall of 2017, Facebook lurched into crisis mode again after disclosing that Russia-backed entities used its platform and advertising tools to spread divisive messages to disrupt the 2016 campaign.
Facebook’s next controversy came in March, when it disclosed that it had suspended political analytics firm Cambridge Analytica for improperly accessing the data from as many as 87 million Facebook users. That disclosure forced Chief Executive
to testify in front of lawmakers in early April.
More recently, Facebook has been under fire for its policies around misinformation. Mr. Zuckerberg said in an interview last week that Facebook wouldn’t take down posts that promote conspiracy theories, such as those that assert that the Holocaust and 2012 Sandy Hook massacre never happened, because Facebook didn’t want to be the arbiter of truth.
On Wednesday, the family of a Sandy Hook victim, Noah Pozner, urged Mr. Zuckerberg to reconsider this position. “We have endured online, telephone, and in-person harassment, abuse, and death threats,” the parents, Leonard Pozner and Veronique De La Rosa, wrote. “We are currently living in hiding.”
Despite those controversies, advertisers broadly speaking have remained on the site, largely because there are few other outlets that can match its reach and ability to target narrow slices of consumers.
“It’s going to take a lot more than the scandals they have had to change to the way that advertisers are using their dollars,” said
chief marketing officer of marketing analysis firm 4C Insights.
Much of Facebook’s success stems from Instagram, the photo- and video-sharing app that Facebook bought in 2012 for $1 billion. According to data firm eMarketer, Instagram is expected to generate more than $8 billion in global ad revenue this year.
Several marketing firms said new formats were propelling new spending on Instagram, including ads inserted between Instagram “Stories” or photo- and video-montages posted by users that vanish after 24 hours.
Write to Deepa Seetharaman at Deepa.Seetharaman@wsj.com