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‘Facebook Throws Napalm On The Fire’: Wall Street Reacts To Zuckerberg’s Terrible, No Good, Very Bad Quarter

"We haven’t seen this disastrous a print since the 1Q16 LNKD-massacre that brought the entire NASDAQ down."

Abandon ship!

On Wednesday evening, after the company reported its first topline miss since 2015, Facebook plunged by what would be the most in its history as a public company if the after hours decline were to be mirrored in Thursday’s regular session.

Shares were already racking up losses, but things got materially worse when the conference call exacerbated concerns about the trajectory for revenue growth. Zuckerberg also indicated that content moderation and investment in security are set to weigh on profitability going forward.

The linked post above details the extent to which the stock is over-owned by hedge funds and also lists some of the ETFs and mutual funds that are heavily invested in the shares, but the overarching message in that piece was that the analyst community was pretty sure nothing like this could happen.

Prior to Wednesday, Facebook had 44 buys, 2 holds and just 2 sells. Note the price targets:

BuyIt

Fast forward 12 hours and the fallout is pretty dramatic. You can see some of the new price targets below:

Facebook4

Drilling down a bit, Morgan Stanley slashed its target on the shares to $185 from $215, while UBS downgraded the company to neutral from buy .

For his part, Raymond James’s Aaron Kessler cut his recommendation to outperform from strong buy (you can see that downgrade denoted with the red arrow above), and lowered his target to $210 from $240 (still a relatively benign take given where the stock is trading).

Nomura’s Mark Kelley downgraded the shares to neutral from buy and lowered his target to $183 from $228.

If you think back to Wednesday evening, Barclays’ Ross Sandler sounded a bit incredulous on the call. Specifically, he asked CFO David Wehner the following:

Sandler: Dave, I think you said that the quarter-on-quarter growth rates are going to be high-single digits lower than the prior-year quarter-on-quarter growth rates versus 3Q and 4Q, that would imply around a 20% year-on-year growth rate exiting fourth quarter. So just want to clarify, is that what you actually said?

Yes, hello Dave, I just want to clarify, did you “actually say” what I though you said?

On Thursday, Sandler is out with a new note and here’s the title:

Napalm

Yes, “napalm on the fire” and just to be clear, Sandler’s take on this situation is pretty dour. Here’s an excerpt from the note, in which Barclays cuts its price target on the shares by 20% to $180:

Key Take-Away: Either Core Is Imploding Or FB Wants Self-Inflicted Pain

We haven’t seen this disastrous a print since the 1Q16 LNKD-massacre that brought the entire NASDAQ down. The two theories we could come up with as to why FB is guiding revenue down severely with 3Q and 4Q now expected to both decelerate high single digits sequentially are: 1) they don’t want to create the perception of getting rich while their product presents issues for society (but why didn’t this happen on the Jan/April calls?), or 2) there are more serious engagement problems with core Facebook that have materialized recently that they are trying to fix. The truth is likely somewhere in the middle. Stepping back, FB is now shifting from the top of the sentiment pedestal to very shaky ground. EPS is barely growing, hence we think it should trade at a discount to GOOGL. The -20% after-market reaction looks overdone, but we would wait for the dust to settle before stepping in.

Meanwhile, Goldman was a bit more measured in its take. They did cut their price target on the shares to $205 from $225, but the tone of the analysis is a bit more constructive. Specifically, the bank wonders if the company is “down but not out”.

Down

While Goldman is probably correct to suggest that it’s a bit premature to count Mark Zuckerberg “out” based on a single quarter, the outlook has most assuredly darkened.

From a kind of 30,000 foot perspective, what I wonder is whether the reputational damage from the various data misuse scandals and the Russian ads debacle might have permanently impaired this brand.

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3 comments on “‘Facebook Throws Napalm On The Fire’: Wall Street Reacts To Zuckerberg’s Terrible, No Good, Very Bad Quarter

  1. Privacy, or lack thereof is the issue of the decade. Before I #deletedfacebook I downloaded my dossier, and was thrilled it was only 7 megabytes compared to a friend’s who had 3gb of shit recorded on him. I had fastidiously locked down every privacy setting to a maximum of “friends only”, disabled all apps, and removed a sneaky Facebook plugin I discovered installed on my browsers. FYI, the “friends of friends” setting is basically completely public, and you are likely connected to Kevin Bacon.

    I refuse all cookies, js, adverts (sorry I do block ads on my pc browsers, but you still get hits from my cellphone and tablet). I also automatically delete all cookies, logins, scripts and password protect everything.

    A friend of mine worked at the NSA, and he even puts tape on his phone and web cameras, has a $3000 router attached to his Spectrum bridge (aka “modem.)

    Another thing to be aware of is VPNs from thrid world countries and locations, as well as disinformation on review sites for VPN providers. I only use VPN from 1st world countries, since I’d rather authorities need a warrant to see my traffic than the trust of an ambitious mafia capo running extortion operations out of the Seychelles.

    Facebook brought this on themselves. While I don’t think Zuck is a sociopath, his crippled empathy likely comes from Asperger’s… No offense to the autistic intended.

    Be careful out there folks. You are being watched.

  2. H, thanks for the post from the analysts’ perspective. I have no doubt that facebook will be back up in valuation, given how much momentum is driving some of these stocks.

    I have always had a problem with this company given its nonchalant attitude towards the very serious issues of privacy infringement. I never had a facebook account.

    Steve Jobs saw this coming many many years ago and was a true visionary in this respect. And he warned facebook to tighten things up. He steered Apple in the right direction relative to privacy from the onset, because he understood how social networks really work. He understood how the tools and the interfaces that facilitate social networks have the very powerful potential to turn very ugly and to be inappropriately used.

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