Monday, 20 August, 2018

Facebook (FB): What the Hell Just Happened to the Stock?

GettyFacebook CEO Mark Zuckerberg may not like what he reads GettyFacebook CEO Mark Zuckerberg may not like what he reads
Lindsey Cook | 26 July, 2018, 10:45

The social network's user base and revenue grew more slowly than expected in the second quarter as the company grappled with privacy issues, sending its stock tumbling after hours.

Facebook (NASDAQ:FB) managed to reached 2.23 billion monthly users but these numbers show that growth topped just 1.54 percent, which is much slower than Q1's 3.14 percent around where its growth rate has hovered for many years.

Then, during the company's earnings call with investors, the shares fell even more as CEO Mark Zuckerberg and his colleagues warned of slowing revenue growth and increased expenses in the months ahead.

Its $1.74 earnings per share beat expectations of $1.72.

"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", said Chief Financial Officer David Wehner.

Nearly all of Facebook's revenue - US$13 billion of the total US$13.2 billion - came from online advertising, a sector dominated by the California social network along with Silicon Valley rival Google.

Facebook growth was already slowing in Europe, and the new regulations may have added to that, said analyst Daniel Ives of GBH Tech Research.

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Facebook attracted about 20% of digital advertising spending in the U.S. a year ago, according to research firm eMarketer.

Facebook suffered a blow in China on Wednesday when regulators there withdrew their approval of a company innovation hub to support local startups, the New York Times reported on Wednesday, citing a person familiar with the matter. Instagram's business model is so far the most mature, and likely contributed meaningfully to the company's revenue in the quarter, analysts have said, though Facebook doesn't break out sales for the app.

The firm reported revenue of $13.2bn for the three months to the end of June, up 42% year-on-year. That same number fell in Europe, where the company has had to comply with a strict new privacy law, known as GDPR, the Washington Post reported. User growth - both on a monthly and daily basis - was flat in the US and the rest of North America, while it declined slightly in Europe.

"We also believe "considerable strength" from the Instagram side of the house has neutralized any soft spots on the core Facebook platform in our opinion". The company may have halted more ad purchases than expected as it applied a broad definition of what's considered "political". "We think that's the right thing to do for the business", he said.

Despite the rocky quarter, Facebook shares had hit an all-time high before Wednesday's earnings report and its quarterly revenue was still up 42 percent from this time a year ago.

Facebook's headcount increased 47% year-on-year, to 30,275 as of June 30, 2018. Furthermore, user growth, both DAUs and MAUS came below expectations at 1.47B and 2.23B, vs. consensus of 1.49B and 2.25B, respectively.

Analyst Ross Sandler with Barclays asked if revenue growth was set to drop to "around 20% by the fourth quarter of this year".

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