founder Mark Zuckerberg and COO Sheryl Sandberg. Justin Sullivan / David Ramos / Getty
Facebook stock was pummeled after a disastrous Q2 earnings call last night.
But the news was not a surprise: Mark Zuckerberg warned investors what he was going to do three months ago on the Q1 call.
On Wednesday, Zuck’s team signalled there was more negative news ahead.
Here is an analysis of exactly what was said, and how it should be interpreted.
Facebook has not had a worse quarter than last night’s earning’s since going public in 2012, according to Wall Street and City analysts’ notes this morning. Their headlines are almost comically brutal:
New Existential Crisis – Credit Suisse
FB Throws Some Napalm On The Fire – Barclays
Threw out the Kitchen Sink – Jefferies
Worse than expected – Cowen
Tough outlook but largely self-inflicted – Deutsche Bank
Outlook Suggests Growth “Wall” In Sight – Pivotal
Bombshell Guidance – Macquarie
Total Reset; Major Management Credibility Rebuild Ahead – Stifel
Taking a Break from Being Friends – UBS
Facebook stock plunged nearly 24% last night after CEO Mark Zuckerberg warned of slowing revenue growth. In after-hours trading, the stock was down 20.2% at $217.50.
But here is the thing: Zuckerberg, COO Sheryl Sandberg, and CFO David Wehner warned everyone three months ago that bad news was coming, and no one listened . (No one? Goldman Sachs might have been an exception .)
To understand what happened last night, and to comprehend why one of the most successful stocks in tech history is now being utterly battered by the market, you need to go back to
the Q1 2018 earnings call and read what Zuck et al actually said. Then compare that to last night’s call. Once you’ve done that, you’ll know that the worst might be yet to come.
First, here is what happened three months ago on the Q1 call
Zuckerberg warned everyone what he was about to do:
- Focus on safety, security, and privacy.
- Prevent harm, hate speech.
- Restrict developers.
- Force transparency on advertisers.
- Focus on “meaningful” engagement, and tolerate declines of non-meaningful engagement.
- Cut passive interaction.
- “2018 is a year of important investment.”
- Caution on GDPR: “There’s certainly potential for some impact. Any change of the ability for us and our advertisers to use data can impact our optimization potential at the margin, which could impact our ability to drive price improvements in the long run. So we’ll just have to watch how that plays out over time.”
Crucially, none of those priorities were about audience or revenue growth. Most of them are clearly negative for both those issues.
Sandberg added: - Users will get option to cut ads.
- Users get more control over ads.
That’s the same thing. More hurdles for advertisers.
CFO David Wehner said: - “We’re seeing a decrease in certain types of time spent such as passive video consumption as a result of that and an increase in areas like sharing. So, we’re not really optimizing the business on time spent, but rather the kind of quality of conversations and connections.”
- “On the GDPR trend, … [we] expect there would be a flat to down impact on MAU and DAU.”
- “I don’t know that we really see a doomsday scenario here. I think what we think is that depending on how people react to the controls and the ad settings, there could be some limitations to data usage. We believe that those will be relatively minor. … there is a potential to impact targeting for our advertisers. Obviously, if they are less able to target effectively, they’ll get a lower ROI on their advertising campaigns.”
Same again.