Bulletin
Investor Alert

The Ratings Game Archives | Email alerts

Oct. 31, 2020, 10:30 a.m. EDT

Facebook sales were great, but ‘headwinds’ spook analysts

new
Watchlist Relevance
LEARN MORE

Want to see how this story relates to your watchlist?

Just add items to create a watchlist now:

  • X
    Facebook Inc. Cl A (FB)
  • X
    Alphabet Inc. Cl A (GOOGL)
  • X
    Alphabet Inc. Cl C (GOOG)

or Cancel Already have a watchlist? Log In

By Jon Swartz

Facebook Inc. shares slumped 6% Friday after the social network announced record third-quarter revenue but threw some serious shade about its prospects in 2021.

The contrasting news initially lifted Facebook’s /zigman2/quotes/205064656/composite FB +0.34% stock in after-hours trading late Thursday when it reported but has since sent it into a tailspin.

“We worry about four key risks,” Needham analyst Laura Martin said in a note Friday. Martin is concerned “elevated usage during COVID is falling as in-person social venues reopen”; flat, if not declining, use of the service in the U.S. and Canada; a business shift toward small businesses and away from big brands; and the company’s exposure to regulatory- and election-related issues. She has a hold on Facebook shares with no price target.

Read more: Facebook earnings offer vivid display of undaunted ad growth; CFO expects Q4 jump

Read more: Facebook earnings: Cleaning up content has been focus before elections

Jefferies analyst Brent Thill focused on a decline of 2 million daily active users in the U.S. and Canada, which “begs [the] question of whether Q1/Q2 user growth is sustainable.” Still, Thill raised his price target on Facebook shares to $330 from $320 and maintains a buy rating.

What has analysts both bullish and skeptical were the comments of Facebook Chief Financial Officer David Wehner.

Despite the usual upbeat comments from Facebook Chief Executive Mark Zuckerberg and Chief Operating Officer Sheryl Sandberg during a conference call with analysts late Thursday, Wehner cautioned “significant targeting and measurement headwinds in 2021” that include “headwinds from platform changes, notably on Apple iOS 14, as well as those from the evolving regulatory landscape.”

While there is plenty to unpack on Facebook’s immediate future — the election is four days away, and an expected Federal Trade Commission lawsuit over Facebook’s business practices could come this year — its record revenue ($21.5 billion) and earnings ($2.71 a share) pleased several analysts.

“The breadth of FB’s ad business continues to expand, adding 1 million advertisers in the quarter (now at 10 million) as small businesses come to the platform to start/re-start their businesses,” Morgan Stanley analyst Brian Nowak wrote Friday. “This, the accelerated digital transformation mentioned above and FB’s leading reach and ad efficacy is why we believe the business is likely growing faster now than it was in January/February.”

The return of brand ad spending to digital platforms is the bigger story in the market, Bernstein analyst Mark Shmulik said in a note Friday.

Facebook, Alphabet Inc.’s /zigman2/quotes/202490156/composite GOOGL +1.65% /zigman2/quotes/205453964/composite GOOG +1.66% Google, Pinterest Inc. /zigman2/quotes/211319641/composite PINS -0.29% , and Snap Inc. /zigman2/quotes/205087158/composite SNAP +6.72% reported strong ad sales this week, underscoring a gradual return to pre-COVID spending by brand names. The question may be if Facebook is able to maintain its No. 2 slot in digital advertising market share after Google following an ad boycott in July that led to gains by Pinterest and Snap.

Read more: Here are the major brands that have pulled ads from Facebook

/zigman2/quotes/205064656/composite
US : U.S.: Nasdaq
$ 287.52
+0.97 +0.34%
Volume: 17.36M
Dec. 2, 2020 4:00p
P/E Ratio
32.74
Dividend Yield
N/A
Market Cap
$816.18 billion
Rev. per Employee
$1.57M
loading...
/zigman2/quotes/202490156/composite
US : U.S.: Nasdaq
$ 1,824.97
+29.61 +1.65%
Volume: 1.47M
Dec. 2, 2020 4:00p
P/E Ratio
36.44
Dividend Yield
N/A
Market Cap
$1215.33 billion
Rev. per Employee
$1.36M
loading...
/zigman2/quotes/205453964/composite
US : U.S.: Nasdaq
$ 1,827.95
+29.85 +1.66%
Volume: 1.22M
Dec. 2, 2020 4:00p
P/E Ratio
36.50
Dividend Yield
N/A
Market Cap
$1215.33 billion
Rev. per Employee
$1.36M
loading...
/zigman2/quotes/211319641/composite
US : U.S.: NYSE
$ 68.01
-0.20 -0.29%
Volume: 6.58M
Dec. 2, 2020 4:00p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$42.16 billion
Rev. per Employee
$515,454
loading...
/zigman2/quotes/205087158/composite
US : U.S.: NYSE
$ 47.49
+2.99 +6.72%
Volume: 24.36M
Dec. 2, 2020 4:00p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$66.30 billion
Rev. per Employee
$409,309
loading...

Get news alerts on Facebook Inc. Cl A — or create your own.
This Story has 0 Comments
Be the first to comment
More News In
Industries

Story Conversation

Commenting FAQs »
Link to MarketWatch's Slice.