Higher security costs and lower operating margins are hurting Facebook's growth.
Blue-chip stocks on Wall Street weathered the “tech crash” as Facebook shares tumbled 20%, wiping about $US120 billion from its market value.
It was the biggest one-day value shock since Intel and Microsoft shares crashed in September 2000.
While the Dow Jones Industrial Average rose 0.4%, the Nasdaq Composite fell 1.0%, dragging the broader S&P 500 down 0.3%.
In Europe, stocks in France and Germany surged after the White House announced a moratorium in the tariff war between the US and the EU.
Facebook reported slower-than-expected revenue growth for the second quarter – albeit logging in at more than 40% – and said it expected quarterly revenue growth to decline over the rest of the year.
Furthermore, chief executive Mark Zuckerberg said Facebook needed to invest more in security measures to prevent the platform from being manipulated.
Analysts frustrated
Analysts expressed frustration with the company’s remarks.
“Mark Zuckerberg has been talking and writing about fixing the business for months now, and yet management is just now discussing its impact to financial results,” Stifel analyst Scott Devitt says. “It’s infuriating, to be honest.”
Facebook chief financial officer Dave Wehner also revealed new ad formats, such as those within Instagram Stories, weren’t pulling in the same amount of money as ads shown in the Facebook and Instagram feeds.
Operating margins would fall to the “mid-30s” from about 44% over the next few years.
The Facebook fall tipped over into other high-profile tech stocks. Notably, Amazon.com fell 2.8% ahead of its result expected after the market closes.
“We have continually expressed concern about such narrow large-cap leadership, especially in the names where valuation is not a consideration,” JonesTrading chief market strategist Mike O’Rourke says.
'Beginning of end for FANG'
“This appears to be the beginning of the end of the FANG era,” he adds, referring to the Wall Street acronym for Facebook, Amazon.com, Netflix and Google parent Alphabet.
Shares of Alphabet and Netflix recovered late in the session, rising 0.5% and 0.1% respectively.
At the close, the Dow added 112.97 points, or 0.4%, to 25,527.07. The S&P 500 fell 0.3% to 2837.44 and the Nasdaq shed 1.0% to 7852.18.
US government bond prices fell after the European Central Bank said it would hold its benchmark interest rate at the current level and trade tensions eased between the US and EU.
The yield on the benchmark 10-year Treasury was 2.982% from 2.936% on Wednesday.
In commodities, oil prices rose after Saudi Arabia halted shipments through a Red Sea waterway.
US crude rose 0.7% to $US69.77 a barrel and Brent crude, the global oil benchmark, rose 0.5% to $US74.30 a barrel.
Stocks surge in Europe
In Europe, the Stoxx Europe 600 added 0.8% after President Trump and European Commission President Jean-Clause Juncker said they would work to reduce trade barriers.
Germany’s DAX surged 1.8% and France’s CAC 40 jumped 1.0% while the UK’s FTSE 100 gained 0.06%.
However, car tariffs were missing from the agreement. Shares of Daimler fell 0.4% after it warned earnings would be hit by US tariffs on steel and aluminium.
In the US, General Motors, Ford Motor Co and Fiat Chrysler Automobiles also lowered their profit outlooks for the year.
Shares of Nissan Motor fell 0.2% in Tokyo after reporting a 14% slump in profit on increased metal prices.
Asian stocks finished lower. China’s Shanghai Composite fell 0.7%, Hong Kong’s Hang Seng dropped 0.5% and Japan’s Nikkei eased 0.1%.
