Despite beating analyst expectations, Facebook shares plummeted after it revealed a drastic rise in expenses in its 4th-quarter earnings—analysts say the stock could “struggle” as advertising revenue declines by skleb1234
Drew Angerer/Getty ImagesDespite beating analyst expectations, Facebook shares plummeted after it revealed a drastic rise in expenses in its fourth quarter earnings—as experts warn that mounting regulatory scrutiny and decelerating revenue growth could continue to negatively impact the stock.
While Facebook beat Wall Street expectations on earnings and revenue, the market’s reaction was somewhat unusual: The stockThe plummeting share price was thanks to Facebook’s increased costs and expenses of nearly $47 billion for full-year 2019—aThe latest drop, however, makes Facebook stock more fairly valued, according to Morningstar senior analyst Ali Mogharabi.
While user growth has remained steady, Facebook must deal with decelerating revenue growth—and will likely have to invest more aggressively in R&D to come up with more innovative features, products and services, says Mogharabi. “They’ll have to spend more to keep up that rate of revenue growth.” “This is not necessarily a cost-driven selloff—it’s more of a revenue selloff,” argues Adam Crisafulli, founder of Vital Knowledge. “Investors’ focus is shifting from expenses to revenue which is an interesting development for the stock.”
Until there’s more clarity on whether Facebook’s decelerating revenue growth can stabilize, it’s going to be an “overhang” for the stock moving forward, in addition to data privacy headwinds which are still to come, Crisafulli describes.Revenues from advertising—the largest component of Facebook’s business—could also be impacted by regulatory scrutiny, making targeted advertising less effective: “Data won’t be utilized as much or as effectively as it has been historically,” Mogharabi describes.
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