Why Facebook's shellacking spells danger for all stocks
Facebook lost more than $125 billion in value after the markets closed, with shares plummeting more than 20%, following an earnings report that missed revenue and user growth estimates.
Why it matters: Facebook is part of a small group of companies that has been keeping the overall stock markets afloat for much of 2018.
- According to a Bank of America Merrill Lynch research note, the so-called FAANG stocks — Facebook, Amazon, Apple, Netflix and Alphabet (Google) —were single-handedly responsible for the S&P 500 being positive through the first half of 2018. Without them, the index’s first half performance would have been -0.73%.
What happened: Facebook spent the quarter trying to fix its fake news problem, and it’s possible that these results show (perversely) that it’s beginning to work.
- Mark Zuckerberg wrote that “we're investing so much in security that it will significantly impact our profitability.”
- Thing is, profits were actually up. And up more than expected. This is a top-line issue reflecting slowed growth, not a bottom line issue about more money going out the door.
Be smart: What we’ve seen in the past 12 hours is that these foundational stocks can fall very far, very fast, and very unexpectedly. Add in a recent subscriber growth hiccup from Netflix, which continues to trade at an astronomical multiple to earnings, and it shows just how thin the line has been between black and red.