Is Facebook too big to fail despite Sh12 trillion slump?

Even giants wobble and Thursday July 26 was the turn of social media powerhouse Facebook to record what is now being called its worst day in history.

Events unravelled quite quickly. First, Facebook hit a record high of around Ksh63 trillion in market value worth on July 25. But then came a conference call with analysts on the same day where the company’s chief financial officer David Wehner made shock announcements. Facebook projected to fall short of second quarter estimates and further still expects a slow growth rate over the second half of the year. Hardly what investors wanted to hear.

The fallout saw close to over Ksh11.9 trillion wiped from Facebook’s market value to see it valued at around Ksh52 trillion on Thursday. Accompanying was a Ksh1.7 trillion hit on founder and CEO Mark Zuckerberg that saw him drop down from fourth to sixth on the world’s rich list. A real time monitoring of global billionaire’s worth on Forbes now values Zuckerberg at Ksh6.7 trillion.

However, the record one day slump that surpassed the Ksh9 trillion that Intel experienced in 2000 has seen the world’s media react by saying there is no real cause for alarm.

An opinion piece in British based newspaper The Guardian ran with the title, “The panic over Facebook’s stock is absurd. It’s simply too big to fail.” This seems to echo the underlying overtone over history’s biggest slide to one of the greatest multi-billion companies ever.

The Guardian piece states rather ironically that the panic is not causing sleepless nights at Facebook because the company still recorded Ksh 1.32 trillion in one quarter (this was a 41% increase from last year).”Only dupes pay attention to one-day moves in any stock, or even whole sectors.” the opinion piece says.

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CNN ran with “Investors shouldn’t panic. Facebook will bounce back”. The piece began outrightly by saying, “Facebook investors are freaking out. They shouldn’t be.”

CNN quoted analyst Richard Greenfield who said, “Facebook is actively choosing to make less money, deprioritizing near-term monetization to drive engagement to even higher levels to capture even more of their 2.5 billion monthly users’ time and attention.” Translation : Facebook is choosing to make less money because it can afford to at the moment. It will recoup the money later.

Bloomberg TV interviewed analysts who played to the piper’s tune of it being a “tremendous buying opportunity” of Facebook’s stock which should be clutched at “with both hands.”

The implication seems to be that Facebook’s investment in its story share format, as well as its other apps; Messenger, WhatsApp and Instagram will see the company pull itself out of this. Zuckerberg was even upbeat on Wednesday over Instagram’s success, as more people are joining the popular photo and video sharing social networking site.

The BBC, in an explainer styled article quoted a market analyst reacting to Facebook’s record wipeout by saying, “It’s not the end, not on the basis of one set of numbers.There needs to be a sense of perspective.”

The perspective for now seems to be that investors should prepare for a market in the short term where Facebook is making profit increases in the 20-30% rather than the 40-50%.

Amid the clamour for changes within Facebook following a myriad of controversies, their seems to be a line of thought the social networking site is doing the noble thing in making much needed changes. Calls for a review of privacy policies have taken a cumulative hit by revelations of the Cambridge Analytica Scandal in April this year. At the same time, the issue with how Facebook deals with fake news has seen calls for revision.

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The Washington Post was cautious, quoting a MorningStar report that had indicated that now is not the time to seek to buy a bargain into the social media company.

The Post did however deliver one of the best one sentence summary of all the happenings at Facebook in recent months. “After more than a year’s worth of controversies, Facebook is no longer invincible.”