Why FB Stock Fell Even with a Killer Q3
Facebook Inc (NASDAQ:FB) stock dropped seven percent despite a stellar showing on its Q3 earnings report, due to fears of declining revenue going into 2017.
It almost doesn’t seem fair that you can post 56% revenue growth over the same period last year, have gains in net income and earnings per share by 166% and 165%, respectively, and see an increase in monthly active users by 16% to 1.8 billion and still watch your stock drop. (Source: “Why Huge Growth and Profits Weren’t Enough For Facebook’s Investors This Quarter,” Fortune, November 2, 2016.)
Of course, the stock game is less of a “what have you done for me lately?” and more a “what are you going to do for me tomorrow?” situation. And therein lies the problem.
The trio of CEO Mark Zuckerberg, COO Sheryl Sandberg, and CFO David Wehner got up and elaborated on the report during a conference call, vaunting Facebook’s successes, but with Wehner warning about slowing revenue growth ahead.
Advertising revenue has played a significant role in the growth of FB stock, Wehner explained, but with that growth expected to slow as Facebook taps out the ad market, 2017 will see revenue growth take a hit.
“With a much smaller contribution from this important factor [ad load] going forward,” Wehner said at the conference, “we expect to see ad revenue growth rates come down meaningfully.” (Source: “Third Quarter 2016 Results Conference Call,” Facebook Inc, November 2, 2016.)
As for expenses, Wehner elaborated on 2017, calling it an “aggressive investment year,” and said that there will be a focus on adding top-tier engineers to the Facebook team.
This slowdown in growth has left some investors wary, which then caused FB stock to dip nearly seven points, or about five percent, in today’s trading. Keep in mind that Wehner has spoken about a slowing in growth before, but investors seem to believe him this time.
Meanwhile, Sandberg spoke about “capitalizing on the shift to mobile, growing the number of marketers using our ad products, and making our ads more relevant and effective.”
Finally, Zuckerberg gave an update on “WhatsApp,” “Messenger,” and “Instagram,” three apps under the Facebook Inc umbrella. He gave an update on where each app was in terms of monetizing, putting Instagram in the third phase of providing more tools to businesses in order to facilitate the interaction with users, while WhatsApp was just entering the second phase of enabling people to “organically interact with businesses.”