jeudi 26 juillet 2018

Valeant VS Facebook

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. 

3 commentaires:

  1. Facebook owns its direct competitor, Instagram. The need for a social network will not vanish and with Instagram, Facebook is replenishing is user base.

    Like you said, Facebook has no debt, unlike Valeant.

    A 20% lost in in reaity the loss from the last earning boost. The stock was at same level a few months ago

    And quite frankly, after following and owning FB stock, I am under the impression that Zuckerberg is having fun with making waves on the market.

    It is a lot of turbulence, and became sick if it and sold FB last spring for Google.

  2. As a facebook shareholder, I find myself feeling frustrated. You see, the guy who ran cambridge analytica and violated the terms with Facebook to violate people's privacy turns out to the be the whistleblower who got Facebook in trouble. How do you describe such a bizarre situation to outsiders? I give you access to personal info. on my clients. You promise not to use it for political purposes. You break that promise/agreement...then you report my company because the information I sold you was used for political purposes (BY YOU). lol
    There are companies that violate our privacy far worse than Facebook. I agreed to a new car loan and all of a sudden I'm getting a lot of phone calls at home for credit cards, line of credit and even asking me if I want a subscription to the daily newspaper or a free psychic reading. WHAT THE HELL? This is no coincidence. The banks and credit card companies are selling our information. Nobody ever called me at home because of Facebook. There seems to be a political dimension to this scandal. I mean google must violate our privacy way worse than Facebook but they seem to be on good terms with the right people in Washington DC.
    Getting to the numbers, Facebook reported 32% increase in earnings and 42% increase in ad revenue from the same quarter last year. Those numbers are still pretty awesome (especially for such a huge company). They say that in the next couple of quarters the number goes down about 9% per quarter. That would put revenue growth in the low 30s. In the short term, they must spend a lot of money on security AND they are also going to spend in other areas to grow for the long term. Stuff like AI research costs a lot of money...but should be highly lucrative over the long term. They will not stop spending on the things they need to grow because they have to spend on security measures.
    People are worried that Facebook may be in decline. But Facebook is more than just Facebook. Instagram, WhatsApp and their Messenger are on the rise. Keep in mind that Facebook has bought about 69 companies. They bought Instagram for $1 Billion and it is growing like crazy with over half a billion daily active users (maybe closer to a billion by now). Facebook has about $44 billion in cash and no debt.
    I'm not adding shares, but I'm not selling any either. I would not bet against Zuckerberg but I have enough shares of Facebook that I purchased in the 150s.
    In other news, Patrick Industries was up 10% upon announcing earnings Thursday morning and sports a really low p/e multiple AND explosive growth. We may be looking at p/e multiple expansion if this keeps up. Lastly, Amazon just announced earnings of DOUBLE what the analysts were expecting and 12x more than the same quarter last year. They are making a lot of money in cloud computing and from online advertising (these sources of revenue carry margins way higher than the razor thin profit in e-commerce / online retailing, and they are growing like crazy in cloud computing where they are a dominant force).

  3. I sold out of Facebook. Lost 10% after the dip. Rather put the money into something else while Facebook sorts out their shit.