Market Direction: BULLISH alert
issued 2/15/2018
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Facebook drops $44 after earnings...
Facebook Inc. is evidently not
bulletproof.
The social-media behemoth’s stock
lost roughly one-fifth of its value in the extended session Wednesday after its
earnings report missed expectations on revenue and showed slowing user growth.
Weak guidance also rattled investors.
Facebook FB, +1.32% stock dropped about 7%
immediately after the earnings report was released, then plummeted to a loss of
more than 20% as a conference call with analysts progressed. Close to 34
million shares changed hands in the extended session, well above the average
volume of 17 million shares for a regular trading session over the past month.
Should the losses hold into
Thursday’s regular session, Facebook would lose more than $100 billion in
market capitalization and lose the stock’s gains for the year thus far. As the
after-hours session wrapped up, Facebook was trading at $173.50, down 20%.
Facebook stock had recovered from a decline earlier this year in the wake of
the Cambridge Analytica scandal, one of several controversies and warning
signs that the company had managed to weather with little damage to its
stock. But declining revenue and user growth, topped by a warning
from executives that it will continue, seemed to end that run.
“The guidance, it’s nightmare guidance,”
GBH Insights head of technology research Daniel Ives said. “If you look at
their forecast for the second half of the year in terms of user growth, and the
expense profile, it refuels the fundamental worries about Facebook
post-Cambridge Analytica.”
The Menlo Park, Calif.-based company
reported $5.12 billion in net income for the quarter, which amounts to $1.74 a
share, up from $3.89 billion or $1.32 a share in the year-ago period. The
bottom-line beat was above analysts’ average estimates of $1.71 a share.
Profits were not what rattled
investors, though. Facebook recorded sales of $13.04 billion, a 41.9% increase
from a year ago, but that was lower than analyst estimates and previous growth
rates. User growth was flat in the U.S. and Canada, and declined in Europe from
the previous quarter.
But the stock didn’t fall off a
cliff until Chief Financial Officer David Wehner disclosed that the
social-media giant expects the revenue-growth slowdown to continue.
“Our total revenue-growth rates will
continue to decelerate in the second half of 2018, and we expect our
revenue-growth rates to decline by high-single-digit percentages from prior
quarters sequentially in both Q3 and Q4,” he said on the conference call. Wehner
also said Facebook still expects expenses to grow 50% to 60% from last year.
In the past, founder and Chief
Executive Mark Zuckerberg has said the company planned to hire 20,000 people to handle safety
and security on its platforms in response to controversies such as use of Facebook to push
fake news ahead of the 2016 U.S. election. The company disclosed
that its head count has increased 47% to 30,275 since the year-earlier period,
part of that outsize spending.
“As I’ve said on past calls, we’re
investing so much in security that it will significantly impact our
profitability,” Zuckerberg said. “We’re starting to see that this quarter.”
Even though Ives says that the
quarter was far from disastrous — it was decent with a few rough patches — he
expects investors to continue punishing the stock in the near-term.
“The quarter itself had geographic
soft spots and disappointed the bulls,” Ives said. “There are a lot of natural
headwinds [Facebook is] seeing, this is going to be one quarter that puts the
stock in the penalty box for a while until they can prove that advertising
tailwinds and user growth are back on the right track.”
Facebook’s numbers in Europe
declined in large part due to the European Union’s General Data Protection Regulation,
which went into effect during the quarter. Some analysts had speculated that
GDPR might actually benefit giants such as Facebook and Alphabet because they would be able to implement the new requirements unlike
smaller companies, but Zuckerberg and other executives said GDPR was
the reason for Europe’s slowing user count. It dropped by 3 million daily users
and 1 million monthly users since the first quarter.
“We did see a decline in monthly
actives in Europe, down by about 1 million people as a result, and at the same
time, it was encouraging to see the vast majority of people affirm that though
want us to use context, including from websites this they visit, to make our
ads more relevant and improve their overall product experience,” Zuckerberg
said on the earnings call with analysts.
Chief Operating Officer Sheryl
Sandberg said on the call that the GDPR has not affected the company’s top
line.
The one saving grace for Facebook
could be continued support from advertisers. Less subject to the quarterly
demands of investors, advertisers aren’t yet seen as planning to ease back on
Facebook budgets.
“There’s still unprecedented scale,
the best ad tech in the industry,” said PMX Agency Facebook lead Jesse Math.
“In the short term, Facebook is still viable. Really this quarter and this year
it’s focused on a long-term strategy, everything they do is focused on making
Facebook a place where users want to be. All the changes it’s been making to
the platform, the algorithms, the tools advertisers use are for the long term.”
As Facebook stock plummeted after
hours, it also brought social-media rivals Twitter Inc. TWTR, +4.86% and Snapchat parent company
Snap Inc. SNAP, +1.90% to the party, sending both stocks down by single-digit
percentages. Facebook stock has gained 23% this year, as the S&P 500
index SPX, +0.91% rose 5.5%.
The all-time highs since our initial
recommendation to go LONG
this market. Here is how the markets have performed:
Stock Market
Direction Recommendation (2/15/2018)
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||
Dow
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up 599.98 points a 2.38% gain
|
2/27/18
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Nasdaq
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up 676.88 points a 9.33% gain
|
7/25/18
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S&P 500
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up 116.83 points a 4.28% gain
|
7/25/18
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Related Link: http://www.stockmarket-direction.com/
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