Facebook might be the 'cheapest stock in the S&P 500,' says Jim Cramer 3 Hours Ago | 01:59
Facebook opened more than 8 percent higher a day after reporting better-than-expected first quarter earnings.
Shares opened at $173.22 Thursday after closing Wednesday below $160. That puts Facebook on pace for it's best day since January 2016.
Facebook beat on both the top and bottom lines, quelling concerns about a diminishing user base and margin compression — at least for now.
Facebook has been battling reports of online abuse, government probes and concerns around user privacy.
The company's stock has lost tens of billions of dollars in shareholder value since initial reports of massive data mishandling by research firm Cambridge Analytica.
With Thursday's surge, the stock is down just 2 percent on the year.
It's roughly 11 percent off its 52-week high, having clawed its way back from bear market territory earlier this month.
Facebook Inc. FB, +9.58% shares rose 2.7% in the extended session Wednesday after the company beat Wall Street earnings and revenue expectations. Facebook stock closed flat at $159 during regular trading. The company reported first-quarter net income of $4.99 billion, or $1.69 a share, compared with $3.06 billion, or $1.04 a share, in the year-ago period. Daily active users rose 13% to 1.45 billion, and monthly active users also rose 13% to 2.20 billion. Revenue rose to $11.97 billion from $8.03 billion in the year-ago period. The company increased its headcount by nearly 50% to 27,742. Analysts surveyed by FactSet had estimated $1.35 a share on revenue of $11.41 billion. For the second quarter, analysts model earnings of $1.63 a share on revenue of $12.91 billion. Facebook stock has lost 9.4% this year, with the S&P 500 index SPX, +0.89% falling 1.5%.
Revelations of the improperly handled data of 87 million users did nothing to stop Facebook Inc.‘s money machine.
The data-privacy scandal involving Cambridge Analytica broke in mid-March, but the company appeared to shrug off those concerns with a huge earnings and revenue beat in the first quarter. In a Wednesday report, Facebook FB, +9.58% posted $4.99 billion in quarterly profits on sales of $11.97 billion, topping analysts’ average estimates of $4.01 billion for net income and $11.41 billion in revenue.
“Despite facing important challenges, our community and business are off to a strong start in 2018,” Chief Executive Mark Zuckerberg said on a conference call Wednesday afternoon. “Over the next three years we’re going to keep building Facebook to not only be a service that people love to use, but also one that’s good for people and good for society.”
Facebook stock gained more than 4% in after-hours trading after the earnings report was released, and was up 7% following its conference call. Before Wednesday’s earnings, Facebook shares had fallen roughly 18% from its February record high, after closing flat at $159. The stock has lost 9.5% this year, as the benchmark S&P 500 index SPX, +0.89% has fallen 1.5%.
Head of technology research at GBH Insights Daniel Ives wrote in a note to clients late Wednesday that the company's results were “solid” and heralded the company’s profit and revenue as a “key initial victory” for the stock as investors gauge damage from the Cambridge Analytica fallout.
See also: Facebook says you are NOT the product, but explanation confounds privacy experts
Facebook added 70 million users in the first quarter, meeting user-growth expectations despite public calls to delete the social-media app. The company now boasts 1.45 billion daily users and 2.2 billion monthly members. The company’s operating expenses came in below consensus expectations, though Zuckerberg has warned they will continue to eat into Facebook’s profits as it adds 20,000 workers to address security and privacy concerns.
According to the earnings release, Facebook increased its workforce by 48% to 27,742, compared with the year-earlier quarter.
Chief Financial Officer David Wehner broke down a portion of those security and safety costs, telling analysts that the sales and marketing expense growth of 51% compared with the year-earlier quarter was driven by the “community operations investment.” That unit includes some of the money the company is spending on quality and safety initiatives, and Wehner expects the spending to “carry through the year.”
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Previously, executives said the costs related to safety and security would be spread across a number of operating-expense line items, including research and development and general administration, but had not given more detail.
Impressions, a key data point in terms of gauging advertiser interest during the quarter, grew by 8% and the price of ads grew by 39%. In the year-earlier period, Facebook grew impressions by 32% and ad prices by 14%. Because Facebook’s ads are in demand, when the social network constricts the supply ad prices typically rise — and should that happen and prices remain constant or fall, it would likely signal a weaker demand from advertisers.
The company’s healthy ad business drew the vast majority of sales, but investors often look to the company’s nascent Messenger and WhatsApp divisions as potentially massive sources of revenue in the future. Zuckerberg said that the company didn’t view those services as means of charging for payments, but that messaging apps “can be a more transactional medium than feed.”
In terms of how that might look in the future, Zuckerberg said, “You can click through or tap through to a message thread, and then you can either get customer support or complete a transaction or do a follow-on transaction. And that will be very valuable for businesses.”
Read: Facebook is leaving the technology sector, and that may be good news for tech investors
Much of lawmakers’ and the public’s attention has been focused on the Cambridge Analytica scandal that broke on March 17. Zuckerberg said as recently as early April that it has had no material effect on the company’s financial operations — yet.
But the changes the company announced early this year have had much more time to play out. In January, Zuckerberg said the company would give posts and other content from members’ friends and family a higher priority than material produced by third-parties such as news organizations, marketing companies and other for- and nonprofit corporate pages.
On the call Wednesday, at least two analysts asked Facebook executives whether the time spent on the platform had changed because of the changes to the news feed. Executives did not directly answer the question.
In January, Zuckerberg issued a warning to investors: Facebook executives expected “some measures of engagement” to drop and that its 2-billion-and-counting user base would likely spend less time on the platform.
When asked about the business impact of the changes at the February Morgan Stanley tech conference in San Francisco, Facebook Chief Financial Officer David Wehner told analysts that spending less time on the platform doesn’t necessarily mean a corresponding decline in revenue.
“The impact of the business is much more muted because we’re still seeing that there’s lots of post engagement,” he said. “So when you’re taking away time from things like passive video, it doesn’t mean you’re not seeing as many posts in news feed…I don’t think the impact on the business is really that profound relative to the impact on time.”
In contrast, Europe’s General Data Protection Regulations, set to take effect May 25, will have an impact on Facebook’s operations. The company expects European monthly and daily active user counts to be flat or down in the second quarter as GDPR takes effect, but isn’t sure about the long-term implications.
Chief Operating Officer Sheryl Sandberg told analysts that the entire online advertising industry has to deal with the changes and what the company is concerned with is trends over time.
“We’re going to all know a lot more after we roll out, but the thing that won’t change is that advertisers are going to look at the highest [return on investment] opportunity,” Sandberg said. “And what’s most important in winning budgets is relative performance in the industry.“
Facebook, Inc. (Nasdaq: FB) reported first-quarter earnings after the closing bell on Wednesday afternoon, crushing both revenue and earnings estimates. FB stock quickly rose 5 percent in after-hours trading.
Going into the report, Facebook shares had lost 9.5 percent year-to-date and were up less than 10 percent in the last year.
Facebook earnings: Q1 by the numbers. In a first-quarter for which many investors were likely bracing themselves for, rather than greedily anticipating great numbers, Facebook blew it out.
This is unabashedly great news for shareholders: Revenue came in at $11.97 billion, up 49 percent over year and far better than the $11.41 billion analysts expected.
FB stock also posted earnings per share of $1.69, up 62.5 percent year-over-year and well above the $1.35 analysts were expecting.
The company also announced an additional $9 billion stock buyback plan and announced solid user growth. Monthly active users rose 13 percent year over year to 2.2 billion, while daily active users also ticked up 13 percent to 1.45 billion.
To emphasize how wholly FB relies on the mobile ecosystem, 91 percent of all advertising revenue came from mobile.
Data and privacy: The cloud hanging over FB. Obviously, Facebook wasn't the most popular stock going into its earnings report on Wednesday. The recent revelations that upwards of 80 million Facebook users had their user information improperly accessed by Cambridge Analytica in 2015 and 2016 – and that that information was used to target political ads towards users in an effort to influence 2016 elections – is a situation that can generously be termed "bad news bears".
Not only was CEO Mark Zuckerberg summoned before Congress and grilled on national television, but there could be additional regulatory scrutiny for FB due to the breach, and most importantly for the stock, the scandal could change user behavior.
"In the near term, investors are seeing a direct correlation between data privacy and Facebook's rapidly descending stock price," says Chris Belli, vice president of marketing and business development at Studio Science.
"Ensuring user consent and awareness is increasingly critical for Facebook to restore investor confidence, particularly with data privacy legislation looming in the U.K. and as U.S. legislators continue to digest Zuckerberg's recent testimony," Belli says.
NASDAQ: FB 159.69 PRICE (USD) 0.00 (0.00%) DAILY CHANGE 52 Week Low 52 Week High 144.42 195.32 See full interactive chart for FB » Data as of 4:00 pm on 4/25/2018
Going forward. FB has certainly seen better days, but the fact is that this remains a company growing at light speed that seemingly can't be stopped. Ironically, the social network has social and cultural challenges of its own to navigate if it wants to remain popular with the public, but it doesn't seem to have difficulty recruiting talent, with its headcount rising 48 percent year-over-year.
A headcount of quality engineers in Silicon Valley is sort of like a biotech company's pipeline, so it's great for Facebook shareholders to see the dominant social network still has the ability to recruit heavily, and hopefully move on from its embarrassing data scandal.
