Facebook Inc. (FB) is caught between the need to spend more to bulletproof the social sharing site from fake news and data breaches and the need to spend more on user created video, virtual reality and other new features to generate user excitement, according to Scott Kessler, an analyst for CFRA Research.
CEO and chairman Mark Zuckerberg pledged to do both simultaneously on Wednesday's earnings call.
"In light of increased investment in security, we could choose to decrease our investment in new product areas, but we're not going to -- because that wouldn't be the right way to serve our community," Zuckerberg told analysts.
Wall Street appears to think that's easier said than done.
Facebook shares tanked Thursday falling 19% to $176.26.
"There are pretty reasonable, serious questions about the company and the fact they are doing this all at once," Kessler said. "They are investing in security and reliability at the same time they need to reinvigorate growth. It is costly not only to the company but to investors." Kessler, who cut his 12-month price target $16 to $199, added "the question is whether they are spending enough on the areas people want them to."
On Wednesday, Facebook touted the success of Overstock in presenting advertisements as part of Instagram Stories. But the company said its efforts to monetize Facebook's version of Stories was weighing on revenue growth.
Facebook's Stories feature allows users to post a slideshow of photos and videos that disappears after 24 hours. Kessler noted the website feature overlaps with Instagram's already popular feature.
Thursday's declines erased most of the year's gains.
Net revenue decelerated 7 % between the first and second quarters, and was expected to slow in the next two quarters by a "high single digit" rate, the company said.
Facebook projected full-year total expenses for 2018 would grow between 50% and 60% including both efforts to secure the platform and develop and market new products including virtual reality.
Zuckerberg said the company has made progress in its ability to automatically screen and delete graphically violent or other content that violates the company's community standards, in part by using artificial intelligence and by removing the financial incentives for promulgating fake news stories.