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Why Did Facebook (FB) Stock Climb Wednesday?

Benjamin Rains
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Why Did Facebook (FB) Stock Climb Wednesday?

Facebook (FB) saw its stock price jump 1.7% Wednesday to help stop some of the embattled social media firm's bleeding. But the question is what had investors excited about Facebook?

Facebook FB saw its stock price jump 1.7% Wednesday to help stop some of the embattled social media firm’s bleeding. But the question is what had investors excited about Facebook?

Recent News

Facebook is setting up a “war room” in an effort to fight back against the spread of misinformation and “fake news” across its platform during the upcoming midterm elections, according to a New York Times report Wednesday. The social media company will have a digital and physical war room at its Menlo Park, California headquarters to keep track of what  happens on its site during election season. Part of the goal is to prevent the spread of false news and fake accounts.

Facebook is expected to have more than 300 people working to curb issues that occurred on the social network during the 2016 U.S. election cycle. “We see this as probably the biggest company-wide reorientation since our shift from desktops to mobile phones," Facebook's head of elections and civic engagement team Samidh Chakrabarti told the NYT.

On top of the war room, Facebook announced a pilot program to help secure U.S. candidates and campaign staff from “hackers and foreign adversaries.” Facebook said it would help officials monitor for hackers and set up two-factor authentication, among other security initiatives. “Although this is a pilot program, it’s one of several steps we’re taking ahead of the U.S. midterm elections to better secure Facebook, including detecting and removing fake accounts, working to prevent the spread of false news, and setting a new standard for political and issue ads transparency,” Facebook’s Head of Cybersecurity Policy Nathaniel Gleicher wrote Monday.

Mark Zuckerberg’s company also popped up in headlines after eMarketer released a report that said Amazon AMZN is set to become the third largest digital advertiser in the U.S. behind only Google GOOGL and Facebook. Aside from that, there weren’t many newsy stories that would have caused investors to buy Facebook stock (also read: Should Google & Facebook Fear Amazon's Growing Ad Business?).

Nonetheless, shares of Facebook popped 1.72% to close regular trading at $163.06. FB stock currently rests just a few dollars above its 52-week low of $159.48 per share and roughly 34% below its year-long high of $218.62 per share. Therefore, it seems like some people simply bought Facebook stock because it is “cheaper” than it has been.

 

Outlook

Now let’s take a quick look ahead to help give investors an understanding of what to expect from Facebook. The company saw its user growth slow in the U.S., Canada, and Europe last quarter. This is something to keep an eye on because these key regions generated roughly 72% of FB’s total Q2 revenues, but only accounted for 28% of its total Monthly Active User base.

Worst still, Facebook CFO David Wehner said that the company expects its operating margins will fall into the "mid-30s on a percentage basis" over the next several years and that “total expense growth will exceed revenue growth in 2019.” Facebook posted an operating margin of 44% last quarter, which marked a 3% decline from the year-ago period.

Looking ahead, our current Zacks Consensus Estimate is calling for Facebook’s adjusted Q3 earnings to fall by roughly 7%. Meanwhile, FB’s Q4 earnings are projected to dip by 0.45%. Facebook’s earnings estimate revision activity has also trended completely downward in a major way for Q3, Q4, and fiscal 2018 over the last 60 days.

Facebook is currently a Zacks Rank #4 (Sell), based mostly on its extremely negative earnings revision activity.

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