Facebook Stock – Correction Allowed Facebook To Rally

Facebook reported a similar quarter to its last quarter. It beat EPS estimates, missed revenue estimates, and missed user estimates. The difference between this quarter and the last quarter is the price of the stock. Its stock was at $217.50 on July 25th.

Heading into this report, Facebook stock was at $146.22. Investors don’t like uncertainty about an area of a firm’s business. Either they must solve that problem or the stock price craters.

Facebook stock cratered to where it became too cheap. The stock rallied 3.01% after hours. It did not collapse as it did after last quarter.

Investors expected 2018 to be a challenging year for Facebook. The ad load on timelines and the number of North American users reached saturation.

Also the controversies about the way Facebook handles user data and how it monitors the platform made the stock crash. I think it’s primed to rally in the next 12 months.

Facebook Stock Beat EPS & Misses Revenue Estimates

First, let’s get into the headlines from the report. EPS came in at $1.76 which beat estimates for $1.47.

Regardless of the slowing growth, each time estimates are beaten, the PE multiple shrinks. The stock can’t keep falling while EPS keeps rising for much longer. The stock has transformed from a momentum growth name to a GARP (growth at a reasonable price) play.

Revenues were $13.73 billion which missed estimates for $13.78 billion. If this were a stock like Netflix or Nvidia, that would be enough to cause it to plummet. But the stock has already fallen enough.

Total daily active users were 1.49 billion which missed estimates for 1.51 billion. Monthly active users were 2.27 billion. This missed estimates for 2.29 billion.

As you can see from the chart below, the monthly active user growth rate fell from 10.9% to 9.6% on a year over year basis. It increased from 1.4% to 1.8% on a quarter over quarter basis.