Wall Street is reeling over Facebook’s (FB 189,02 -3,71 -1,93%) lower profit margin guidance, initiating 3 Wall Street Firms to lower their rating of the mega social media company and cut their price targets.
On Wednesday, Facebook reported their Q2 Earnings and reported slightly lower than expected sales, along with lower-than-expected daily users to boot. However, the biggest disappointment to investors was its guidance, which projected slower sales growth for third and fourth quarters, along with a drastically reduced projection for long-term profit margins.
Chief financial officer David Wehner feels the company’s operating profit margin will fall to the “mid 30’s on a percentage basis” over a more than 2-year period, compared with second-quarter operating margin of 44%.
In after hours trading yesterday, directly proceeding the Q2 report release, the market went into a total panic in after hours trading. Facebook shares plummeted over 20% in Thursday’s pre-market session below $171. As of right now in Thursday morning trading, Facebook’s current value is $179.61, which is a 17.63% drop (-37.59 USD).
Nomura Instinet lowered its rating to neutral from buy for Facebook shares, citing management’s weak sales and profit forecast’s for the downgrade.
“Though management is likely being overly conservative, in our view, our model has taken on an entirely new revenue growth and margin profile than what we we were looking for headed into the print,” analyst Mark Kelley said in a note to clients Thursday. “With stagnating core user growth, we think there is too much near-to mid-term uncertainty to recommend shares at this point.” (Source: CNBC, “Three analysts downgrade Facebook’s once-loved stock as Wall Street is stunned over coming profitability plunge”)
Kelly reduced his price target for Facebook shares to $183 from $228.
Raymond James also followed suit and lowered its rating to outperform from strong buy due to lower profit margin guidance.
“Facebook guided mid/long-term operating margins to the mid-30s vs. our -45% om 2018. Given the increased near-term uncertainty on revenue growth, slowing user growth, and lower margin forecast, we are downgrading our rating,” analyst Aaron Kessler said in a note to client on Thursday.
Kessler also reduced his price target on FB shares to $210 from $240.
Another analyst is of the opinion that Facebook’s other new product offerings will not be able to make up for slowing growth rate of it’s core platform.
“After a pronounced selloff in response to mgmt comment about forward growth & margin trajectory, we now see the risk/reward as balance for FB going forward,” UBS analyst Eric Sheridan said in a note to clients on Wednesday. “In our opinion, the new growth drivers (Instagram, Watch, Stories, Messenger/WatsApp, VR) frankly aren’t big enough over the short/medium term to alter the decelerating growth & margin pressure profile of the P&L.”
Sheridan reduced his rating to neutral from buy for Facebook shares while lowering his price target to $180 from $212 for the company.
Even after the three downgrades, Facebook still boasts a massive 28 buy ratings on Wall Street, three hold rating sand two sells.
In my humble opinion, people are so addicted and embedded in this social media app as a part of their world and daily lives, that I really don’t see Facebook staying hurt for a very long period of time. It’s comical that all the liberals took to Facebook to cry out about all Trump’s bad deeds and gross injustices, on the platform that supposedly aided in getting him elected. If they are so firm in their political beliefs and appalled by Trump, they would surely delete their Facebook accounts….right? However, it seems that no-matter what scandals they are involved in, from sharing users personal information without their consent to Cambridge Analytica, people still sign on daily, posting every single moment of their lives. So, no in this millennial “me” culture, I don’t believe Facebook will be down for long, personally I’d buy them while they are down because I smell a comeback.