Shares in social media company Facebook suffered the biggest one-day wipeout in US stock market history yesterday as its executives forecast years of lower profit margins.
At least 16 brokerages cut their price targets on Facebook after its chief financial officer David Wehner startled an otherwise routine call with analysts by saying the company faced a multi-year squeeze on its business margins.
That "bombshell," as one analyst termed it, played into concerns on Wall Street that Facebook's model could be under threat after a year dominated by efforts to head off concerns over privacy and its role in global news flow.
Shares closed down almost 19% at $176.26, wiping more than $120 billion off the company's value or nearly four times the entire market capitalisation of Twitter.
Slowing revenue growth initially pulled the stock down nearly 9% in after-hours trading on Wednesday night before losses picked up on the margin outlook.
"Over the next several years, we would anticipate that our operating margins will trend towards the mid-30s on a percentage basis," Wehner said on a conference call with analysts.
Facebook's margin fell to 44% in the second quarter from 47% a year ago as it spent heavily on security and initiatives to convince users the company was protecting their privacy.
The company also said revenue growth from emerging markets and the company's Instagram app, which has been less affected by privacy concerns, would not be enough to repair the damage.
The impact on the rest of the FAANG group of high-flying tech stocks was marginal.
Shares in Google parent Alphabet closed up 0.7%, while those in Apple fell 0.3% and Netflix closed barely higher. Amazon.com was up 2.3% following its own results after the bell last night.
Of 47 analysts covering Facebook, 43 still rate the stock as "buy", two rate it "hold" and only two rate it "sell". Their median target price is $219.30.