Did we see the trigger for the widely predicted stockmarket slide? Facebook surprised with weaker than expected second quarter figures (they were still pretty good) yesterday morning, Australian time and then doubled down by forecasting a flattening in growth and the continuing rise in costs and whooshka, the shares plunged in after hours trading on Wall Street, slicing more than 20% off the company’s market value or upwards of $US132 billion (or nearly $A180 billion).
Facebook shares had peaked at an all time high of $US218.62 during the day’s trading and ended after hours dealings around $US172, about where they were when the Cambridge Analytica scandal broke in late March.
Facebook earned a net profit of $US5.12 billion for the quarter, up from $US3.89 billion and above analysts’ estimates. But sales were slightly lower at $US13.04 billion than forecasts (but still good).
The company reported 1.47 billion daily active users (1.45 billion at the end of March quarter), while Wall Street expected 1.49 billion; it logged 2.23 billion monthly active users (2.20 billion at the end of the March quarter), but analysts wanted 2.25 billion.
In the US and Canada, Facebook’s most profitable region, daily active user growth was flat at 185 million compared with the first quarter. Monthly active users also didn’t grow compared to the first quarter and remained steady at 241 million in the US and Canada.
But the real worry was the confession, or sorts from the company’s Chief Financial Officer David Wehner who told a briefing after the results were released that Facebook expects the revenue slowdown to continue. “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,” he said.
He also said Facebook still expects expenses to grow 50% to 60% from last year. the shares had dipped 7% when the results were released, and then plunged in a matter of minutes after those comments to be down more than 24% at one stage before a small rebound say them back to around 21% lower.
Last night it was Amazon’s turn to report and then next Tuesday (Wednesday morning in Australia) its Apple’s quarterly report – if either follow in Facebook’s steps and report figures that underwhelm, then investors will start doubting the health of the so-called FANGS stocks (Facebook, Apple, Netflix and Google (Alphabet).
It has been the rapid growth in the shares of this group of five megatechs (helped by Microsoft) that have helped keep wall Street and global markets for more than 18 months.
Nextflix stumbled last week with lower than forecast figures (but still solid, but not enough for greedy investors). Microsoft out-performed and so did Alphabet on Monday with a better performance on costs.
The dramatic slide in the value of Facebook shares tells us how nervous US investors are about these megatech stocks. The rest of the world’s investors are watching these reports and the share prices of this giants because their strong performances in the past year and a half have helped keep market positive and rising in the face of pressures from Donald Trump’s erratic behaviour, trade wars and other provocations. Facebook had rebounded strongly from the Cambridge Analytica sell off in March through May.
Now Facebook’s growth story is under pressure, as is that for Netflix, the best performing of the megatechs in the past year followed by Amazon. One more bit of doubt and and Hamish Douglas’ warning to go to cash and a 30% market slide could every prescient.