Facebook (NASDAQ:FB) was sitting at a record high not too long ago, thanks to a nearly uninterrupted multi-year climb. Then earnings happened. Facebook stock, as you’re likely aware, dropped almost 20%, erasing about $120 billion of value from the company after revenue and monthly active users fell short of analyst expectations.
For perspective, it was the biggest one-day loss by any company ever.
Facebook earned $1.74-per-share — two pennies better than Wall Street hoped — but that was overshadowed by the aforementioned disappointments. For some time now, I’ve been saying that the panic about Facebook and its content moderation (or lack thereof) is not actually relevant to the company as an investment.
At first glance, this earnings disappointment could suggest the opposite. But — and I’m not just digging my heels in here — I believe it still represents relatively normal consolidation for what will be a continued climb for FB stock.
As technology reporter Mike Isaac pointed out, slowing user growth is not necessarily attributable to the current panic around Facebook stock.
“facebook’s CFO has been screaming bloody murder for 8 consecutive quarters that facebook cannot continue growing at the rate it has forever
yet analysts were “bewildered” when that rate showed slowing yesterday
analysts have either been in a coma for two years or are stupid
— ಠ_ಠ (@MikeIsaac) July 26, 2018“
In fact, I would argue, it’s an expected and somewhat inevitable part of the company’s maturity. Much like Apple (NASDAQ:AAPL) suffered as it transitioned from high growth to just plain old growth, investors will adjust.
More importantly, author and former Facebook employee Antonio Garcia Martinez made a compelling argument that the slowdown, which sparked this huge sell-off, is actually a good thing for FB in the long run. While operating costs related to content moderation have brought Facebook margins down a bit, he said, similar obligations are now also going to hang over the head of any startups that were planning to challenge the incumbent social media king.
An established company like FB can handle those costs much better than a fledgling startup. Thus, he argued, Facebook stock’s moat is actually growing.
“So while the cost of maintaining this large ops org is what gave FB shares such a kick today (the market was essentially correctly pricing the op margin haircut) that cost actually *widened* FB’s moat to competitors. (As did the GDPR, incidentally.)
— Antonio García Martínez (@antoniogm) July 26, 2018“
To be sure, Martinez doesn’t see this as a good thing; he called the the impact of Facebook “apocalyptic, or close to it.” But even its widespread impact, in an odd way, speaks to the fact that Facebook is unlikely to go anywhere.
Bottom Line on Facebook Stock
The recent moral panic around the social media giant, as I’ve written before, is unsurprising and unlikely to actually unseat the company. Moral panic is especially common for new types of media and is especially relevant as we seek scapegoats for the current political turmoil.
What we’re witnessing with Facebook stock right now is simply a mob mentality as a result of that panic. Mob mentalities do matter for the markets, but not because you should be following the mob. Instead, recognize when something is an overreaction as the result of people piling on or overreacting to headlines as opposed to keeping their eyes trained on fundamentals.
The swings of the masses can highlight buy and sell points for stock — unless you’re a buy-and-hold investor, in which case, buckle up and keep your cool. Facebook stock’s crown is still very much in tact.
As of this writing, Robert Martin was long FB.
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