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


Did an iceberg just wallop into Facebook (NASDAQ:FB) stock? The social media giant’s shares are plunging at breakneck speed of almost 20% in after-hours trading. The proximate cause was the company’s Q2 miss on revenue and user numbers, as it suffered the impact of a string of scandals and the introduction of tough new European data privacy rules.

Advertising revenue, the lifeblood of Facebook’s lean business model, came in at $13.04 billion, below the Street’s $13.16 billion estimate. 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. Importantly, Europe’s DAUs and MAUs showed a slight sequential decline, raising the question of the impact of GDPR so far on user behavior.

Adding fuel to the fire, Facebook said it expects total revenue growth to decelerate in the second half of 2018, and revenue growth rates to decline by high single-digit percentages from prior quarters sequentially in both Q3 and Q4.

However, as usual, Wall Street analysts come to the defense of Facebook stock on any pullback whatsoever.

GBH analyst Daniel Ives wrote, “While the knee jerk reaction will be negative on these mixed results especially given the meteoric rise in shares from the March lows, we ultimately believe the advertising revenues and underlying MAU/DAU metrics were “good enough” and show the worries of a massive fundamental and user deterioration at Facebook post Cambridge was more bark than bite at this point. This is a clear inflection point for Zuckerberg & Co. as the company’s advertising fortress and MAU metrics still look “well intact” despite the massive potential headwinds caused by Cambridge and the overall privacy worries (GDPR) in Europe although challenges remain.”

“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. In a nutshell, so far the fundamental damage to the Facebook platform has been “very contained” in our opinion and is generally better than feared from the white knuckle period a few months ago. That said, Facebook still has some wood to chop ahead both on the regulatory as well as user/advertiser front which must be successfully managed going forward,” the analyst added.

As such, Ives reiterates Highly Attractive rating (i.e., Buy), with a price target of $225. (To watch Ives’ track record, click here)

Wall Street’s confidence backing this social media giant is strong, with TipRanks analytics showcasing FB as a Strong Buy. Based on 33 analysts polled in the last 3 months, 30 are bullish on the stock, 1 remains sidelined, and 2 are bearish. The 12-month average price target stands at $231.38, marking a nearly 6% upside from today’s closing price. 

 

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