It really, really helps if lots of traders and investors hate your stock going into earnings.
Then you can, as Facebook (FB) did today, announce quarterly results that fall short on revenue ($13.73 billion versus consensus projections for $13.8 billion), and daily active users (1.49 billion globally in the third quarter versus projections for 1.5 billion) and then have your CEO say that markets are saturated in the developed world, and still see your stock go up 2.80% in after-hours trading. During the regular session today, October 30, Facebook shares climbed 2.91%
To be fair Facebook did deliver a positive earnings surprise for the quarter, reporting earnings of $1.76 a share versus projections for $1.47 a share.
But the big news was the very slow rate of growth in global users. The company added just 1 million monthly active users in its core North American market in the quarter, bringing total monthly active users to 242 million in the region. Those users, while a minority among Facebook’s global audience, are extremely important to the company’s revenue since Facebook got an average of $27.61 per user in North America in the third quarter versus just $8.82 in Europe and $2.67 per user in Asia.
The guidance for the rest of the year was rather grim. The company said that it expects revenue growth rates to be lower in the second half of 2018 than in the comparable period in 2017. The Facebook market “may be close to saturated in developed countries,” said CEO Mark Zuckerberg.
Facebook did have a growth story to pitch. The company will build out disappearing story and video features, two areas that aren’t yet heavily monetized. And Facebook continues to build out services for private messaging and stories such as WhatsApp and Instagram. “And there are huge opportunities in video and commerce as well,” Zuckerberg said.
Unfortunately for the near-term bottom line building out these features will turn 2019 into a year of “significant investment,” Zuckerberg noted.
It will be interesting to see if the general market reaction is as positive tomorrow as in after-hours trading. After-hours sessions tend to be dominated by investors and traders who are more likely to have put on short positions or bought options than investors and traders in the regular session.
Facebook is a member of my long-term 50 Stocks Portfolio.