The shares of Facebook (NASDAQ:FB), are changing their course after surging to a record high of $224.20 on Jan. 29, just before the company reported record Q4 earnings after the close. Yet instead of soaring on the results, the shares tumbled more than 6% yesterday.
The world’s largest social media network reported earnings of $2.56 per share on revenue of $21.08 billion, beating consensus estimates. The company's highest-ever fourth-quarter revenue of $21.1 billion, boosted by ads on Instagram and in video, showed a healthy 25% jump from the same period a year earlier.
But the devil was in the details. It was the slowest-ever quarterly sales growth for Facebook and the future guidance wasn’t strong enough at a time when the company faces multiple antitrust probes and more-restrictive privacy regulations globally.
Facebook’s CFO David Wehner said on the earnings call that most of the impact of these headwinds still lies ahead as the quarterly results don’t yet reflect the effects of privacy rules like Europe’s General Data Protection Regulation and the California Consumer Privacy Act.
"We expect our year-over-year total reported revenue growth rate in Q1 to decelerate by a low- to mid-single digit percentage point as compared to our Q4 growth rate,” according to Wehner.. “Factors driving this deceleration include the maturity of our business as well as the increasing impact from global privacy regulation and other ad targeting related headwinds.”
BUY ON THE DIP?
Trading at $209.53 at yesterday's close, Facebook shares were down more than 6% from the heights they hit before the earnings announcement. The stock has surged more than 60% since the low of late 2018 as the company continued adding users to its family of apps amid probes and more calls for reforms to curb political manipulation, hate speeches and radical propaganda.
Facebook Weekly Price Chart 
The sharp market reaction to Facebook's earnings also represents a major dilemma faced by investors in the stock: is this dip in the share value a buying opportunity, or does it show an earnings peak for the company as it faces the daunting task of making its platform more accountable?
Despite the negative reaction, the other details in the earnings report showed the company is still adding users to its platforms. Facebook said it had 2.89 billion monthly active users of its products around the world, after reaching 2.5 billion on the main network as of Dec. 31, exceeding analysts’ estimates of 2.49 billion.
That massive appeal makes Facebook the world’s largest social network and a medium that advertisers can’t afford to ignore.
"Buy on weakness. 4
Q showcased broad-based engagement strength leading to higher monetization and earnings power," Morgan Stanley advised its clients in a post-earnings note keeping its price target unchanged at $270 a share. “FB’s leading and growing engagement lays the foundation for continued monetization and ad growth.”
Bottom Line
Facebook’s earnings present a similar pattern to that investors have seen over the course of last year: strong revenue growth along with a moderate impact from political and regulatory probes. We expect that trend to continue, which will help Facebook shares quickly regain their lost ground. The current dip, in our view, offers a good entry point to investors who were waiting on the sidelines.