Facebook Shares Drop 7% Despite Earnings Beat

A fourth straight quarter of revenue growth below 30% and a 34% jump in expenses may have weighed on investors.
Matthew HellerJanuary 30, 2020

Facebook beat quarterly estimates on both the top and bottom lines but slowing revenue growth and rising expenses appeared to weigh on investors.

For the fourth quarter, the company earned $2.56 per share as revenue rose nearly 24.7% to $21.08 billion. Analysts had expected earnings of $2.53 per share on revenue of $20.89 billion.

Drive Business Strategy and Growth

Drive Business Strategy and Growth

Learn how NetSuite Financial Management allows you to quickly and easily model what-if scenarios and generate reports.

Facebook CEO Mark Zuckerberg

“We had a good quarter and a strong end to the year as our community and business continue to grow,” CEO Mark Zuckerberg said Wednesday in a news release. “We remain focused on building services that help people stay connected to those they care about.”

But the earnings beat was the smallest in Facebook’s history as a listed company and revenue growth came in below 30% for the fourth straight quarter. Expenses jumped 34% to $12.2 billion from $9.1 billion a year ago while operating margins eroded to 42% from 46%.

In extended trading Wednesday after the earnings release, Facebook shares fell nearly 7% to $207.70.

SunTrust analyst Youssef Squali said the drop reflected the high expectations baked into the share price and the fact that Facebook beat expectations only narrowly. Zuckerberg has warned that expenses would climb as the company invests more in safety and security.

“The modest size of the revenue and EPS beat may disappoint some investors accustomed to bigger outperformance,” analyst Colin Sebastian of Baird Equity Research wrote in a client note.

Monthly active users improved 8% to 2.5 billion, compared with expectations of 2.49 billion. But according to MarketWatch, “user growth in North America was a concern” as Facebook gained just 1 million new users in the U.S. and Canada from the previous quarter, to 248 million.

CNBC noted that average revenue per person for the whole family of Facebook apps, including Instagram, Messenger and WhatsApp, came in at $7.38 per user, while ARPU for the core Facebook app was $8.52 for the quarter.

“The more than $1 ARPU difference between the family of apps and the core app highlights what many already suspected: the company’s original Facebook product … is the main thing keeping the lights on,” CNBC said.

Drew Angerer/Getty Images

4 Powerful Communication Strategies for Your Next Board Meeting