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Why Facebook Stock Dropped Today

What happened

Shares of Facebook (NASDAQ: FB) stock slipped 2.1% in 12:15 p.m. EDT trading Wednesday.

That may not sound like much, but on a $1 trillion dollar stock, it works out to about a $20 billion decline in capitalization. (For context: If Twitter suffered a loss of that magnitude, its stock would be down nearly 40%!)

Image source: Getty Images.

So what

For the second day in a row, The Wall Street Journal continued its multipart "The Facebook Files" exposé into Facebook today. On Tuesday, if you recall, WSJ dug into Facebook's "XCheck," a program initially designed to serve as "a quality-control measure for high-profile accounts" but one that has morphed into a sort of "whitelist," or blank-check permission that "shields millions of VIPs from the company's normal enforcement" procedures when they make abusive postings on the social network.

Today, the story turned to how Instagram has proven to be "toxic" and destructive to the "body image [of] one in three teen girls," resulting in "increases in the rate of anxiety and depression," and even prompting "suicidal thoughts" in too many Facebook users. This is a phenomenon that the Journal says Facebook knows full well but plays down because doing something to fix the program might hurt the company's "$100 billion" annual revenue stream.

Now what

Stories like the two mentioned above -- about how Facebook may be sacrificing the well-being of its users on the altar of building its business -- give the social network a black eye, PR-wise. Moreover, the effect of bringing these stories to light is working to depress the value of Facebook stock as they threaten to hurt Facebook's business.

And the damage isn't done yet. WSJ describes the first two "The Facebook Files" articles it has published in print as part of a "series" of unknown length. Online, a third story has already appeared, lamenting that Facebook tried to make its platform a "healthier place," but "it got angrier instead."

The longer this series goes, the more dirty laundry it airs, the greater attention it draws to Facebook in Congress, and the greater the damage you can expect will be done to Facebook's share price.

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Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. Rich Smith has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Facebook and Twitter. The Motley Fool has a disclosure policy.


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