Today: A report that suggested Instagram had lost 25 percent of its users is pilloried on all sides, Facebook gains back most of lost stock price; Also: Stocks continue to suffer amid "fiscal cliff" uncertainty, especially Apple (AAPL) and Hewlett-Packard (HPQ).
Report of Instagram losing nearly a quarter of users doubted on all sides
After a report Friday morning claimed that Facebook's Instagram service had lost a full quarter of its users in response to a controversy about the mobile app's terms of service, Facebook stock dropped more than 3 percent. However, reaction to the report from all sides changed perceptions of the report quicker than an Instagram photo filter, and Facebook stock rebounded to a smaller loss on the day.
The New York Post published the initial report, which showed that AppData metrics had found a large drop in Instagram users, which could be attributed to the company's recent decision to change its terms of service in order to offer users' photos to advertisers on the service, which prompted an outcry from users that led to a reversal by the San Francisco-based mobile app.
The story quickly fell apart, however, starting with a Quartz story that easily poked holes in the numbers. Among the problems with the report was that AppData only tracks Instagram users who access the app through Facebook, a small percentage of users -- The app is believed to have up to 100 million users, but AppData only found 16.2 million daily active users before the changes, and 12.4 million on Christmas Eve.
Also, that drop on Christmas Eve came nearly a week after the uproar over Instagram's terms of service changes. While the Post quoted AppData as reporting that the company was "pretty sure the decline in Instagram users was due to the terms of service announcement," the metrics firm released a statement later in the day that presented a different -- and more plausible -- reason.
"The drop between Dec. 24 and 25 seems likely to be related to the holiday, during which time people are traveling and otherwise have different routines than usual," the company said in a statement.
In other words, many Facebook users are not as active on the service during Christmas, as they are typically surrounded by the loved one with whom they interact on the Menlo Park-based social network.
Instagram also spoke out against the report, telling the Los Angeles Times and other news sources "This data is inaccurate."
"We continue to see strong and steady growth in both registered and active users of Instagram," a spokeswoman said.
While the New York Post report seems to be wrong, some Instagram users obviously did drop the service after the controversy, as users with large follower counts reported the loss of followers, such as New York Times reporter Nick Bilton and the website BuzzFeed. However, the disabled accounts would have to be a massive number to counteract the growing service's continued "strong and steady growth," as the Instagram spokeswoman termed it.
After the Instagram report hit Friday morning, Facebook stock dropped as much as 90 cents, or 3.5 percent, but it rebounded as the report was quashed, moving as high as $26.08, 3 cents higher than Thursday's closing price. At the end of the session, Facebook shares were trading for $25.91, a loss of 0.5 percent.
It has been a busy month for Facebook, which agreed to a $1 billion purchase price for Instagram earlier this year, before the company's tanking stock price dropped the effective price of the acquisition to about $715 million. The world's largest social network has gone through its own privacy changes, with part of the charge meant to marry its terms of services to Instagram's; announced that it will begin charging users to send messages to members with whom they are not connected, prompting another backlash; announced that video ads will soon be added to feeds, which could annoy some users; hit pause on its ad-exchange network; and introduced a new messaging service called Poke meant to rival startup SnapChat.
Through all of that news, Facebook has seen some large daily swings in its stock price, but has stayed relatively stable overall. In the past month, since the close of trading on Nov. 28, Facebook shares have dipped only 1.7 percent, while hitting a high of $28.88 and a low of $25.52, experienced early in Friday's trading session after the erroneous report surfaced. The company appears to be headed for an end-of-year price more than 30 percent lower than the $38 commanded in its record-breaking May initial public offering, with Friday's closing price representing a fall of 31.8 percent.
Wall Street continues to fall as 'fiscal cliff' deadline nears
Facebook's small fall looks even better when compared with the rest of Wall Street, which declined for the fifth consecutive session Friday, with a late decline pushing two of the three major U.S. indexes down more than 1 percent as "fiscal cliff" negotiations continued to produce negative news.
Stock losses increased substantially late in the session, after a meeting at the White House that had produced hopes -- and a midday rise in the indexes -- did not end with the offer of a new plan from President Barack Obama. Instead, the president is pushing for a compromise to the combination of tax hikes and spending cuts set to take place at the end of the year that would extend unemployment benefits and keep taxes lower for those making less than $250,000 a year, while avoiding some of the spending cuts.
That plan is expected to meet resistance in the House of Representatives, which is majority Republican; Speaker of the House John Boehner will convene a session on Sunday, one day before New Year's Eve. Meanwhile, Wall Street twists and turns on every small development in the political drama that seems headed for the deadline.
"The markets are willing to turn on a dime, on whatever the news, whether it's positive or negative," Greg Peterson, director of investment research at Ballentine Partners, told Bloomberg News on Friday. "What the markets fear most is that we're in this paralysis where the government is unable to govern, communicate and compromise."
Apple hits lowest closing point in three-month 'bear market' swoon
Tech stocks performed slightly better than the overall market, with the tech-heavy Nasdaq the only one of the three major U.S. indexes to decline less than 1 percent and the SV150 index of Silicon Valley's largest tech companies following suit with a 0.9 percent loss. However, the most noted tech stock of 2012 was a ballast on both indexes, as Apple hit its lowest closing price in nearly a year and the lowest since its stock began a steep fall to "bear market" territory in late September.
The Cupertino company's shares slid 1.1 percent Friday to $509.41, the lowest closing price since February, as the tech giant dropped patent claims against a new Samsung phone and was ordered to pay in a copyright dispute in China. Apple shares have now dropped more than 27 percent since the introduction of the iPhone 5 on Sept. 21, with a host of possible reasons being bandied.
Other tech giants faced weakness as well, with Hewlett-Packard dropping 2.6 percent after revealing in a filing that the Justice Department was investigating its claims of accounting malfeasance at Autonomy. The personal-computer industry was awash in red Friday, as Intel (INTC) declined 1.3 percent, Advanced Micro Devices fell 4.6 percent, Microsoft dropped 1.5 percent and Dell lost 1.4 percent.
Silicon Valley tech stocks
Up: SolarCity, Yelp
Down: AMD, Zynga, HP, Juniper, Jive, VMware, NetApp, Intuit (INTU), Tesla, Intel, Netflix (NFLX), Splunk, Apple, Adobe (ADBE), Cisco (CSCO), LinkedIn, eBay (EBAY), Google (GOOG), Workday, Applied Materials, SunPower (SPWRA), Electronic Arts
The tech-heavy Nasdaq composite index: Down 25.6, or 0.86 percent, to 2,960.31
The blue chip Dow Jones industrial average: Down 158.20, or 1.21 percent, to 12,938.11
And the widely watched Standard & Poor's 500 index: Down 15.67, or 1.1 percent, to 1,402.43
Check in weekday afternoons for the 60-Second Business Break, a summary of news from Mercury News staff writers, The Associated Press, Bloomberg News and other wire services. Contact Jeremy C. Owens at 408-920-5876; follow him at Twitter.com/mercbizbreak.