The last results of Facebook were out yesterday and it was a catastrophe during the after-hours. Well, it's been a catastrophe today too. The stock went down more than 20% on good results but worrying guidance.
After many quarters with a growth of 30-40%, the company said that it expected growth to "drop to or by" a "high single digit" level. It's wasn't clear. Would the growth drop by about 10% (to about a 25-30% growth) or would it drop to only 10%? My first impression was that the growth would drop to only 10%. And I was horrified.
What can you understand with such an announcement? One of their ways of making money (Cambridge Analytica) is now known to the world and they can't do it anymore. They're too exposed now and they have to take measures to reassure multiple governments and the population. So, they have to spend more money on security and make a cross on some ways of making money.
In a way, it looks like Valeant: the model seems broken. And things start to smell funny. Or stink. And Stephen Jarislowsky said something like: "When things looks bad, you better sell, even if you're gonna regret it later on".
However, the difference between Valeant and Facebook is huge on a financial level.
Valeant had a very heavy debt, and all the growth was dependent on acquisitions. Also, they made money by raising drastically drugs prices. Facebook has a very little debt compared to earnings, a lot of cash and a very good return on equity. But they make money by exploiting our personal informations, which isn't a surprise to anyone but it's nonetheless a very sensible topic. A bit similar to raising drug prices because it's ethically questionable.
When you own shares and you see that the stock is down 20% on weak guidance, what do you do? You search the Internet, looking for some useful information. Then, you arrive on Seeking Alpha and you're submerged with all the shit you read. On a side, there's people saying that Facebook is over and it's the beginning of the end. On the other side, some people are writing "It's a screaming buy! I'm gonna buy like crazy as soon as the market opens!". Only emotions. Nothing else. We're not talking about a fucking hockey or football team here. We're talking about money. Please, leave your heart out of the equation.
So, Seeking Alpha was not that helpful.
I had to make my own judgment... Actually, I still have to make it.
I've read a lot of people saying that Facebook is still dominant, they still grow but they're more mature. It's right. But there's something wrong. A big drop in earnings indicates something which isn't usual. I don't think that things will look better for a while. But on a financial level, Facebook could find some prey, or buy back massive loads of their own stock. So, they have some options.
So, I have mixed views. But I tend more towards the negative than the positive. One thing looks sure to me: one year from now, things will be much better or much worse for Facebook. It won't be stagnant.