Sell Facebook (FB) Stock As It Tumbles Near Its April Lows?
Facebook FB saw its stock price fall over 2.4% again on Wednesday as the social media company continues to suffer amid user growth worries and growing concerns about government intervention. So what should investors do with Facebook stock as it sinks toward its late-March and early-April lows?
What’s Going On?
Facebook COO Sheryl Sandberg and Twitter TWTR CEO Jack Dorsey last week testified in front of members of Congress. The two social media giants were questioned about their roles in the proliferation of “fake news” and what they plan to do to stop the spread of misinformation on their platforms. This problem is unlikely to go away for Facebook with the 2018 midterm elections on the horizon.
Then, on Wednesday, the European Union proposed implementing huge fines for internet firms that do not take terrorist content down quickly enough. The move ups the pressure on Facebook and Alphabet’s GOOGL Google in the EU.
EU executives want to create legal obligations for the likes of Facebook and others to remove terrorist content from their platforms within an hour of being made aware of their existence. The governing body noted that “systematic failures” to get rid of the content within one hour could lead to massive fines. According to the proposal, the maximum fine would be 4% of the firm’s global revenues in the previous year. For Facebook, which reported fiscal 2017 revenues of $40.65 billion, a fine of this size would amount to $1.63 billion.
Inventors should also note that Facebook faces an even greater potential risk than fines and “fake news” concerns. Facebook reportedly saw users spend about 7% less time on Facebook’s core platform over the last year, according to Nielsen.
Instagram did see its users spend about 38% more time on the photo sharing app, while its overall user base grew by 15%. Plus, along with Facebook Messenger and WhatsApp, Facebook is still a social media powerhouse that will grab an impressive chunk of U.S. digital advertisement revenue.
With that said, Facebook’s user growth in the U.S., Canada, and Europe is somewhat worrisome. Even as the company expands elsewhere, these regions accounted for approximately 72% of FB’s total Q2 revenues, but made up just 28% of total monthly active users. Plus, Facebook expects its operating margins will fall into the mid-30s on a percentage basis over the next several years as the firm spends more on security, among other things.
On its own, Facebook’s margin projection means little, but when investors see that FB posted an operating margin of 44% in Q2, fears might start to kick in.
Moving on, Facebook’s adjusted Q3 earnings are projected to fall by nearly 7% even as revenues jump by 34% to $13.83 billion, based on our current Zacks Consensus Estimate. The social media company’s fourth-quarter earnings are projected to dip 0.45%, while its Q4 revenues climb 26.7%.
FB’s earnings estimate revision activity has also trended completely downward over the last 60 days for the last two quarters of 2018, as well as for fiscal 2018 and 2019. This negative earnings revision activity helps Facebook earn a Zack Rank #4 (Sell).
Shares of Facebook sunk as low as $161.92 through early afternoon trading Wednesday to inch closer to their late-March and early-April lows of under $155 per share. Therefore, investors might want to think about moving on from FB stock for now as it looks like Facebook still has room to sink further.
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