Facebook Inc (Nasdaq: FB) reported fourth-quarter earnings Wednesday afternoon, and they blew expectations out of the water. Despite great numbers on earnings and revenue, FB stock fell 4 percent in after-hours trading.
[See: 7 of the Best Stocks to Buy for 2018.]
Shares of Facebook stock are up 41 percent in the last year, while the Standard & Poor’s 500 index is up 23 percent. If the after-hours downward momentum carries into Thursday, though, that rally could be stopped dead in its tracks.
A closer look at Facebook earnings. The social media giant reported adjusted earnings per share (EPS) of $2.21 on revenue of $12.97 billion. Analysts were expecting EPS of $1.95 on revenue of $12.55 billion, so despite the aftermarket action, FB stock owners should be quite happy with those numbers.
Even the “earnings whisper” number, an unofficial number that Wall Street insiders expect, was $2.05 per share, so the sell-off makes even less sense in that light.
Monthly active users (MAUs) of Facebook rose 14 percent to 2.13 billion, and average revenue per user (ARPU) came in at $6.18, exceeding the consensus $5.90 estimate.
Digesting the discrepancy between FB stock and FB results. Facebook shareholders should actually be quite impressed with Facebook’s most recent quarter.
One of the concerns relating to FB’s push into streaming video was that it offered lower margins than the rest of its business. Changes in the News Feed algorithm had also worried onlookers. Both of those worries are proven trivial not simply by good top- and bottom-line numbers but by the exemplary average revenue per user figure of $6.10.
If you’re simply looking for a reason that FB stock fell, there are three possible culprits:
— The tax charge: Due to the 2017 Tax Cuts and Jobs Act, Facebook increased its provision for income taxes to $2.27 billion, resulting in a one-time hit to diluted EPS (unadjusted GAAP earnings) of 77 cents per share. Some investors may look on this unfavorably.
— Selling on news: Sometimes there’s a run-up to a highly-anticipated event, and then when the event happens, shares fall for no good reason. That certainly seems to be why FB stock initially fell on Wednesday, so it could explain part of Facebook’s post-earnings slump.
— Slowing user growth: While MAU growth of 14 percent is remarkable, it’s nominally lower than the 17 percent rate Facebook’s been seeing for a number of quarters now. “Some of the bulls may be disappointed this was not a blowout quarter on the MAU front and will have a knee-jerk reaction,” says a research note on Facebook earnings from Wall Street research firm GBH Insights.
If you’re an individual investor, and looking for an opportunity to buy Facebook, now’s your chance. Wall Street’s rationale sometimes just doesn’t make sense and this is one of those cases. U.S. News named Facebook one of its best stocks to buy for 2018, and the reasoning behind that decision stands firmly in place.
[See: These 7 Funds Make You Feel Good About Investing.]
Even GBH Insights, the research firm that prognosticated on how MAU growth in-line with expectations could’ve disappointed some traders, wrote that FB boasted “robust results,” and had “major tailwinds heading into 2018.”
Great traders and investors don’t follow the market; they take what the market gives them. Right now, it’s giving you a bargain-bin price on an elite tech stock after a phenomenal quarter.
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Facebook Inc Crushes Earnings Estimates, FB Stock Plunges originally appeared on usnews.com
