Facebook Stock Down 9% Following Q2 Revenue Miss, Slowing User Growth

Fredrick Soto
July 26, 2018

The Menlo Park, Calif. -based company reported second-quarter earnings that bested analyst estimates, but the results fell short of projections for revenue and daily active users.

Facebook reported $5.1 billion in profit, or $1.74 per share, compared with the average estimates of $5.1 billion and $1.72 per share among research gathered by Thomson Reuters. Both numbers were just shy of analyst expectations, which had put revenue at $13.36 billion and daily active users at 1.49 billion.

"The company has a track record of resetting revenue growth and expense expectations only to turn around and exceed those expectations the following quarter", Munster wrote.

According to the research firm, Facebook-owned Instagram is making up for some of the slowdown in growth at the social network and will generate US$8.06 billion in worldwide ad revenue this year. It also came as Europe implemented strict new data laws, which Facebook had warned could lead to fewer daily visitors in that region. Facebook's shares had gained more than 10 percent over the last month and closed higher at $217.50 on Wednesday, before the company reported earnings.

Poof. There goes a quarter of really impressive stock gains.

"Our total revenue growth rate decelerated approximately 7 percentage points in Q2 compared to Q1", he said.

"So, it's a combination of all those factors that is leading to the deceleration of revenue growth in the second half".

"Over the next several years, we would anticipate that our operating margins will trend towards the mid-30s on a percentage basis", Mr Wehner said, adding that margins would be down for more than two years.

"Our community and business continue to grow quickly", said Mark Zuckerberg, Facebook founder and CEO.

"Over the next 18 months there are important elections beyond the U.S. and these will all be real tests for Facebook", said Zuckerberg during the earnings call. The company's sales grew at a 42% clip in the second quarter, so the forecast implies that its growth rate for the rest of the year will be 35% or less.

For now, Facebook (NASDAQ:FB) might not be bothered, but it is certainly going to be thinking about its options for the foreseeable future.

As such, Ives reiterates Highly Attractive rating (i.e., Buy), with a price target of $225.

Facebook's stock declined sharply as slowing global daily active users slow and scrutiny of data privacy issues continue to plague the social networking giant.

Facebook's stock tumbled more than 23 percent in after-hours trading, erasing more than $120 billion in market value in less than two hours. It will rake in a growing share of the $273.3 billion worldwide digital ad market, with 18%, according to eMarketer. Analysts projected $13.3 billion.

Earlier this week, Piper Jaffray analyst Michael Olson raised his price target to $250 from $210, a 19% premium from its price at the time.

Facebook also made changes to improve transparency about advertising, including tightening the rules around political advertising and launching databases showing what ads pages have run.

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