Facebook Inc. (NASDAQ: FB), often seen as one of the strongest growth stocks of recent years, has taken a severe hit to stock price on the back of predictions that the next quarterly earnings will be below expectations.
In a conference call early Wednesday, CFO David Wehner told investors that earnings growth would likely be down for the rest of 2018. Wehner pointed to Q3 and Q4 as specific examples where revenue growth would likely decline when compared with quarters from the previous fiscal year.
What’s Causing Slowed Growth?
The company is pointing to several factors leading to slowed revenue growth. Currency fluctuations have been partially blamed. Wehner also stated that heavy investment was also contributing to a drop in revenue. The company is attempting to push into new products to reduce its reliance on advertising revenue. This is a large shift for a company the size of Facebook, and any kind of revenue diversification will come with growing pains. New privacy policies and a subsequent loss of users and advertisers was also partially blamed for decreased revenues.
While this sounds worrying, it’s important to keep perspective. Facebook’s total revenue is still expected to grow. Wednesday’s earnings call revealed 42% revenue growth. By Q4 of 2018, 20% will be a more likely figure.
What Wehner did not mention are the recent mistakes made by Facebook, including poor handling of user privacy, selling advertising that was used for election meddling, and its mishandling of the Cambridge Analytica data scandal earlier this year. Creating a more positive public image and regaining the trust of its users will be important for the company moving forward.
Should You Sell Your Facebook Shares?
Facebook dropped almost -20% on Wednesday and is sitting at -17.53% at premarket for Thursday trading. Investors are disappointed by future earnings projections and selloffs were swift. However, if you’re still holding Facebook shares, then it’s important to understand that nothing has fundamentally changed regarding future potential. Facebook is in a stage of reinvestment and refocus. It may be painful, but it is far from a failed company in its decline.
Analysts still give this stock a BUY rating, and, if anything, current prices could represent an opportunity to buy low with a strong chance of the stock recovering in the coming weeks.
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