Back in 2012, before breaking out, Facebook’s IPO was heavily scrutinised and due to this the company witnessed a weak period. Then things suddenly changed for the better in Q2 2013, when Facebook made a huge comeback with its mobile advertising reaching $656 million.
In Q2 2013, total revenues reached $1.8bn and since then for the most part, the stock had done nothing but climb steadily. Total revenue was at $13.2bn in Q2 this year and in Q3 2018 it was $13.7bn.
But Q2 2018 was still a highly disappointing quarter. Soon after Facebook announced its Q2 earnings, its stock fell by 20% and continued to fall in July, declining by around 30% and wiping billions off its market cap. One of the main issues to hit Facebook has been the data and privacy scandals, which have tainted the stock.
NASDAQ interactive chart, as at 2 November 2018
In the latest Q3 2018 results, Facebook’s reported profit was ahead of analysts’ expectations, but revenue was slightly behind. Sales are up 33% from last quarter, which was the worst performance in six years.
"Beyond 2019, I know that we need to make sure our costs and revenue are better matched over time and that's something that I am focused on as well,” said Facebook CEO Mark Zuckerberg. The company also underperformed across daily and monthly active user numbers. Monthly active users across its platforms – including WhatsApp and Instagram – were 2.27bn, an increase of 10% year-on-year, but below analysts’ 2.29bn estimates.
|Revenue percentage change, Q3 YoY||+33%|
|Earnings per share (EPS) percentage change, Q3 YoY||+11%|
|PE Ratio (TTM)||23.25|
Yahoo finance, as at 2 November 2018
However, reaction to the announcement has been largely positive. After a volatile after-hours trading session following the announcement, Facebook’s stock was up around 5% on Wednesday, rebounding from a 19-month low, leading some analysts to label the dip a buying opportunity.
“The fact that Facebook was able to deliver that given all of the concerns really says I think a lot about the company in that it’s not going anywhere anytime soon, ” Scott Kessler at CFRA told CNBC. “The shares have fallen 30 percent from their highs in July and so we have seen this as a buying opportunity really for the last week or two.”
David Wehner Facebook CFO added that 2019 total expenses will grow 40% to 50% compared to full-year 2018. Zuckerberg also said the company plans on building out new products such as Facebook Watch, Instagram TV and Facebook Marketplace, as well as improving on cyber security.
Trying to forget the Cambridge Analytica scandal
Facebook’s reputation has taken a huge battering after the Cambridge Analytica scandal. Privacy scandals have been rife and have hit a number of firms globally.
The UK privacy watchdog Information Commissioner's Office (ICO) has fined Facebook £500,000 for allowing Cambridge Analytica access to users’ data. Confirming the fine, it said in a statement: "Between 2007 and 2014, Facebook processed the personal information of users unfairly by allowing application developers access to their information without sufficiently clear and informed consent, and allowing access even if users had not downloaded the app, but were simply 'friends' with people who had.”
All the FAANG (Facebook, Apple, Amazon, Netflix and Google) stocks have been suffering through October. Amazon and Alphabet both missed revenue estimates last week and investors are also concerned as to why Amazon forecast lower sales for its normally bustling holiday season fourth quarter. Comparatively, Facebook’s story might not be so bad.
Disclaimer Past performance is not a reliable indicator of future results.
CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.
The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.
CMC Markets does not endorse or offer opinion on the trading strategies used by the author. Their trading strategies do not guarantee any return and CMC Markets shall not be held responsible for any loss that you may incur, either directly or indirectly, arising from any investment based on any information contained herein.
*Tax treatment depends on individual circumstances and can change or may differ in a jurisdiction other than the UK.