After a rough IPO day, Facebook shares had climbed for four years. Since 2012 they were up about 230 percent and investors rarely needed convincing. Until now.
The long run raised the bar so high that a merely “good” quarter no longer counts. Beating every analyst target for years left no patience for less. Markets want not only profit, but more profit than last year and another beat.
$2.4 billion profit was not enough
Wednesday’s results showed $7 billion in revenue and $2.4 billion in net income. Numbers that would thrill most blue chips still disappointed because analysts had modeled about $2.8 billion. Shares dropped about 4 percent.
Any theories on why $fb stock down? FB Q3 net income rose 166% to $2.38B, but analysts expected ~$2.8B, per Reuters data. That why?
— Deepa Seetharaman (@dseetharaman) November 2, 2016
The selloff was confusing at first and started to heal, then the CFO said Facebook had finished its push to create more ad inventory and would not keep stuffing the main site with more ads. That pushed the drop toward 6.6 percent. Growth in that line will eventually flatten; Facebook needs new revenue engines.
Yes. Bad. Stock all of a sudden down more than 4% pic.twitter.com/se2HsuOvwh
— Kurt Wagner (@KurtWagner8) November 2, 2016
Where the other apps stand
Instagram’s sponsored posts already take some pressure off Facebook proper. Investors want Messenger and WhatsApp to contribute similarly.
Mark Zuckerberg’s product playbook is simple: build a great experience and grow around it (Facebook does this well); let people talk to businesses organically; then give businesses tools to reach those people. Facebook has cleared all three stages. Instagram is in stage three. Messenger, with chatbots, is advancing through stage two: bookings, sales, and usage keep rising.
WhatsApp, Facebook’s biggest bet, still looks stuck near stage one. Recent talk of sharing more data with Facebook may signal stage-two work. Zuckerberg said WhatsApp’s next stage comes next year, which could mean chatbot support at the 2017 developer conference.
As a single product Facebook may be near a profit ceiling. As a company it still has cards left to play.
