Facebook tumbles 7% on outlook

<p>Facebook reported a solid set of numbers for the third quarter, with almost every measure ahead of expectation, yet there was a definite lack of […]</p>

Facebook reported a solid set of numbers for the third quarter, with almost every measure ahead of expectation, yet there was a definite lack of enthusiasm from investors.

The figures

Revenue was reported at $7.01 billion versus expectations of $6.92 billion, whilst earning per share came in at $1.09, beating forecasts of 97 cents per share. Additionally, the number of user ticked up to 1.8 billion monthly users in the latest quarter.

Growth to slow

Yet the share price for Facebook has since tumbled 7% in after-hours trading, after the world’s largest online social media network warned that revenue growth would slow this quarter. Given that Facebook is currently trading just shy of its all-time high, after having rallied 20% year to date expectations were high going into the results and the outlook failed to soothe investor concerns that the tech giant will have problems continuing its runaway success. The fears emerge despite Facebook reporting strong mobile ad numbers and steady growth in its enormous network.

The CFO confirmed that Facebook is close to reaching the limit of the ad frequency on the news feed, in other words they are close to reaching the maximum number of ads that they can put in front of users before alienating them, which is why the growth is expected to slow significantly whilst they find revenue from other areas.

Developing new revenue streams

That said the 7% sell off seems rather heavy handed, especially given that the firm still has numerous avenues for developing new revenue streams to explore, for example Whatsapp messaging app which currently generates little revenue yet boosts over 1 billion users.

All in all the numbers are solid but it appears that the low growing fruit has been picked and the market remains concerned that they just won’t be able to keep up the current rate of growth. Added to this, wider market conditions can’t be ignored

Build your confidence risk free
Join our live webinars for the latest analysis and trading ideas. Register now

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index 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 City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.