Shares in the technology company and publisher plunged by nearly 25 per cent in late trading after David Wehner, chief financial officer, said that Facebook's revenue growth would decelerate in the second half of the year and expenses would soar in 2019.
The key metric of monthly active users rose 11 percent to 2.23 billion, below most estimates of 2.25 billion, while daily active users grew a weaker-than-expected 11 percent to 1.47 billion. The news sent Facebook shares crashing some 20 percent, which suggests reality may be catching up to the social networking giant - and the flap over fake news and related scandals may be starting to take a toll.
The Cambridge Analytica scandal prompted several apologies from Chief Executive Mark Zuckerberg and generated calls for users to desert Facebook, which has grown strongly since launching as a public company in 2012.
Analysts were generally expecting earnings-per-share of $1.72 on revenues of $13.3 billion.
"We expect our revenue growth rates to decline by high single-digit per centages from prior quarters sequentially in both Q3 and Q4", Wehner said on the call. It recorded sales of $13.23 billion for the three months ended in June, short of the $13.3 billion Wall Street anticipated.
Other factors have also hurt Facebook's number of users, Zuckerberg said, including tough European rules that went into effect in May to protect people's online data. Fourteen analysts surveyed by Zacks expected $13.43 billion. The last time the company missed revenue estimates was the first quarter of 2015.
Facebook also missed the revenue projections of most analysts for the second quarter.
According to the research firm, Facebook-owned Instagram is making up for some of the slowdown in growth at social network and will generate $8.06 billion in worldwide ad revenue this year. The legislation, known as the General Data Protection Regulation, cost Facebook about 1 million users in Europe, he said.
Last week, Facebook incited controversy once again during a Recode interview, in which Zuckerberg said that some Holocaust deniers who posted to the social network aren't "intentionally getting it wrong".
While privacy was an issue in Europe, politics played a role in North America, which is the company's most lucrative advertising market. We launched our tool to make political advertising much more transparent, including letting you see who any political or issue ad is targeting, how much they're spending and more. "We think that's the right thing to do for the business", he said. More than 2.5 billion people used at least one of its apps - Facebook, Instagram, Messenger, or WhatsApp - during the month of June.
Gene Munster, a venture capitalist at Loup Ventures, said in an email that Facebook is "entering a new period" where declining user growth will translate to slower revenue growth.
Facebook's operating margin fell to 44 per cent in the second quarter from 47 per cent a year ago.
Analyst Ross Sandler with Barclays asked if revenue growth was set to drop to "around 20% by the fourth quarter of this year".