Facebook loses $120bn in market cap in after-hours trade following poor Q2 earnings

Facebook shares crashed by 20% in the after-hours trade eroding over $120 billion in its market cap on Wednesday after less than expected Q2 earnings.

Facebook shares closed about 3% high on Wednesday during regular trade hours but dropped as much as 24% in after-hours trade following a poor earnings report. It later recovered to close at $173.5 as after-hours trades wrapped up.

After-hours trading is the period of time after the regular market closes (4 pm ET) when an investor can buy and sell securities outside of regular trading hours. This is done using an electronic exchange which does not require a traditional stock exchange like Nasdaq or NYSE.

The company earned $5.1 billion, or $1.74 per share, up 31% and above analysts' estimates of $1.71. But revenue — up 42% to $13.23 billion— was slightly below the $13.34 billion that Wall Street was expecting.

Moreover, the user count also dropped in Europe where it is dealing with newly introduced General Data Protection Regulation following the Cambridge Analytica scandal.

Though Facebook said that the GDPR did not have a big effect on the quarter's revenue, but also noted that they were only in effect for about a month before the quarter ended.

User growth — both on a monthly and daily basis — was flat in the US and the rest of North America. Facebook has largely saturated in the US and Western European markets, and is now looking to countries such as Brazil, India and Indonesia for new users. Revenue from these regions, however, is far below what Facebook rakes in from the US and Europe.

The magnitude of erosion of $120 billion can be understood if we compare it to other companies in the market: Facebook lost two Tesla in the after hour trade, i.e. within four hours. The market cap of Elon Musk-led Tesla is $53 billion.

Going by the after-hours trade, technology stocks in the US-based exchanges are expected to fall on Thursday. Facebook, if it drops further, will become smaller than Berkshire Hathaway in terms of market cap. Currently, it is the fifth largest company behind Apple, Amazon, Alphabet and Microsoft.