What Wall Street is saying about Facebook’s brutal Q2 earnings

Facebook CEO Mark Zuckerberg may not like what he
reads.
Getty

Facebook stock took an insane pummeling on Wednesday, wiping nearly $150 billion off of
the company’s value.

Disappointing second-quarter earnings and a far-from comforting
management conference call were to blame for the dramatic share
price tumble.

Facebook missed Wall Street expectations on revenue growth and
user numbers. Revenue rose 42% to $13.23 billion but was $70
million short of forecasts. Monthly active users were around 20
million below predictions at 2.23 billion, despite being up 11%
on Q2 in 2017.

For most other companies, this would be stellar growth, but
Facebook operates in its own universe. And there was scant comfort on the
earnings call, where analysts, investors, and journalists
were told by CFO David Wehner that growth will continue to slow
over the coming months.

Here’s what Wall Street is saying about Facebook’s earnings:

Baird

Price target: $195 (lowered from $210)

Analyst Colin Sebastian lowered Baird’s price target after
Facebook dropped “two bombshells” on the conference call: A
“significant slowdown” revenue growth in Q3 and Q4, and operating
margin declines. But the problems are “self-inflicted,” Sebastian
said.

Facebook is placing more emphasis on Stories, which don’t yet
make as much money as its news feed and other features. An
increased focus on privacy and security could also be damaging
profitability.

“While shares are moving to the ‘penalty box,’ we believe
after-hours trading already embeds model changes. Maintain
Outperform rating,” Sebastian said.

Pivotal

Price target: $140 (lowered from $142)

Pivotal said the earnings were “OK” and did not materially
impacted its modelling. But it warned that the GDPR privacy laws
in Europe and other regulatory threats mean that more pain could
be on the way.

“Our view is that the company is far from ‘out of the woods’ as
the bundling of consent for Facebook to use consumer data with
access to the platform appears to be an aggressive interpretation
of GDPR, and one that might be more subject to eventual
regulatory action,” it said.

Macquarie Research

Price target: $190 (lowered from $220)

Analysts at Macquarie said Facebook’s earnings reflect management
making structural changes for the future.

“This should be welcomed, because in our view, the LT [long-term] trajectory is not on solid ground, as growing privacy issues,
ramping gov’t regulation, and ever-evolving user habits present
LT existential threats to FB’s health,” they said.

As an interesting side note, Macquarie added that there has never
been a better case for Facebook to introduce a subscription
model.

“The potential for FB to offer consumers an ad-free subscription
option is at the highest level ever. Beyond privacy, we are
seeing consumers more and more comfortable paying for digital
content,” it said.

This story will be updated with more reaction as we get
it.