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Why Is Facebook's Stock Plunging?

By Investing.com (Haris Anwar/Investing.com)ETFsJan 31, 2020 12:44PM ET
www.investing.com/analysis/why-is-facebooks-stock-plunging-200503451
Why Is Facebook's Stock Plunging?
By Investing.com (Haris Anwar/Investing.com)   |  Jan 31, 2020 12:44PM ET
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The shares of Facebook (NASDAQ:FB), are changing their course after surging to a record high of $224.20 on Jan. 29, just before the company reported record Q4 earnings after the close. Yet instead of soaring on the results, the shares tumbled more than 6% yesterday.

The world’s largest social media network reported earnings of $2.56 per share on revenue of $21.08 billion, beating consensus estimates. The company's highest-ever fourth-quarter revenue of $21.1 billion, boosted by ads on Instagram and in video, showed a healthy 25% jump from the same period a year earlier.

But the devil was in the details. It was the slowest-ever quarterly sales growth for Facebook and the future guidance wasn’t strong enough at a time when the company faces multiple antitrust probes and more-restrictive privacy regulations globally.

Facebook’s CFO David Wehner said on the earnings call that most of the impact of these headwinds still lies ahead as the quarterly results don’t yet reflect the effects of privacy rules like Europe’s General Data Protection Regulation and the California Consumer Privacy Act.

"We expect our year-over-year total reported revenue growth rate in Q1 to decelerate by a low- to mid-single digit percentage point as compared to our Q4 growth rate,” according to Wehner.. “Factors driving this deceleration include the maturity of our business as well as the increasing impact from global privacy regulation and other ad targeting related headwinds.”

Buy on the Dip?

Trading at $209.53 at yesterday's close, Facebook shares were down more than 6% from the heights they hit before the earnings announcement. The stock has surged more than 60% since the low of late 2018 as the company continued adding users to its family of apps amid probes and more calls for reforms to curb political manipulation, hate speeches and radical propaganda.

Facebook Weekly Price Chart
Facebook Weekly Price Chart

The sharp market reaction to Facebook's earnings also represents a major dilemma faced by investors in the stock: is this dip in the share value a buying opportunity, or does it show an earnings peak for the company as it faces the daunting task of making its platform more accountable?

Despite the negative reaction, the other details in the earnings report showed the company is still adding users to its platforms. Facebook said it had 2.89 billion monthly active users of its products around the world, after reaching 2.5 billion on the main network as of Dec. 31, exceeding analysts’ estimates of 2.49 billion.

That massive appeal makes Facebook the world’s largest social network and a medium that advertisers can’t afford to ignore.

"Buy on weakness. 4Q showcased broad-based engagement strength leading to higher monetization and earnings power," Morgan Stanley advised its clients in a post-earnings note keeping its price target unchanged at $270 a share. “FB’s leading and growing engagement lays the foundation for continued monetization and ad growth.”

Bottom Line

Facebook’s earnings present a similar pattern to that investors have seen over the course of last year: strong revenue growth along with a moderate impact from political and regulatory probes. We expect that trend to continue, which will help Facebook shares quickly regain their lost ground. The current dip, in our view, offers a good entry point to investors who were waiting on the sidelines.

Why Is Facebook's Stock Plunging?
 

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Why Is Facebook's Stock Plunging?

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Comments (10)
Federico Petruccelli
ICU4K9 Feb 02, 2020 9:50AM ET
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These arguments are circular and redundant, in 2018 and towards the end of that year, the most hated postings all mentioned these arguments, but ad revenue just keeps increasing, so it begs the question, is FB failing at this business model, evidence suggests NO. YoY growth might not be always growing more from Q to Q but its also limited by its sheer size. These headings are more eye candy to make you read their article than making a breakthrough in explaining if there is a broken business model.
Marec Huber
Marec Huber Feb 02, 2020 9:27AM ET
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Facebooks CEO is the reason.He is a one time lucky visionary.
Song Li
Song Li Feb 01, 2020 11:06PM ET
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Ask anyone under 21 which they use. Most will say snapchat.
Yanko El Toro
Yanko El Toro Jan 31, 2020 2:11PM ET
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158049761962383.jpg
A technical analysis of FB's monthly chart indicates a potential drop to the demand zone around $150, which suggests a 25% move down. . The monthly shooting star candle along with strong bearish divergences in many indicators - including RSI, MACD and volume - all point toward a significant down-move in the coming months.
Albjan Tunaj
Albjan Jan 31, 2020 2:07PM ET
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I woud have SELL especially after reading this article
Tom Walt
Tom Walt Jan 31, 2020 2:06PM ET
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as things are risky now;)
Jack Again
Jack Again Jan 31, 2020 2:03PM ET
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Because no one under 50 uses Faceplant any more and because they angered half the population blocking conservatives and their ads.
Roger Smith
Roger Smith Jan 31, 2020 1:04PM ET
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Facebook has become the bane of out existance. It perpetuates lies and corruption to the Nth degree. It deserves to fail
Tim ZZ
Tim ZZ Jan 31, 2020 11:15AM ET
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I've tried to monetize many times on Facebook Marketplace selling things. It never works I can't even spend money on there when I try. They need to revamp
Lester Godinez
Optimist_GUY Jan 31, 2020 4:16AM ET
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Having 2.89 billion monthly active users of its products around the world is nothing. How would Facebook monetize these active users? Is it generating sales for those companies that places ads in Facebook? If it is not generating enough sales for the advertisers, then even 10 billion users is not worth anything.
Scott Mitchell
Scott Mitchell Jan 31, 2020 4:16AM ET
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Perhaps you are unaware that in the conference call, revenue per user (I believe the metric is over total users, not active) annualized was stated. If you are truly interested in the stock or the health of the company, then due diligence will show your question already answered. I believe the figure is in the range of 8 dollars to 8.5 dollars per active user.Perhaps you have been on another planet, monetization of user activity is a decade old tradition at facebook.Sure, folks *******about it, but monetization has not cost the platform significantly in terms of loss of user activity, as the conference call made clear, this you seem to agree with.
Joao Abo-gaux
Joao Abo-gaux Jan 31, 2020 4:16AM ET
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Watch A video on surveillance capitalism vpro on youtube and u will understand how they make billions and billions
Sam F
Sam F Jan 31, 2020 4:16AM ET
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FB monetizes its users by selling the users' personal info to advertisers. Tgey have little shame. Zuck said he's not the one who should be testifying before Congress, because ( in my not-so-humble opinion) he is insensitive.
 
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