Facebook, Inc. [NASDAQ: FB] took a hit yesterday, as its earnings for Q1 failed to meet analyst expectations. However, there is a twist to it. Facebook actually did meet analyst expectation, but has decided to set aside $3 billion as a possible settlement with the Federal Trade Commission. This is with regards to its user data practices. The company expects the FTC to fine it anything between $3 billion and $5 billion and is taking steps to cushion itself. In essence, though the company may in theory not have met expectations in Q1, in reality, it has beaten and exceeded expectations, as revenues grew by 26.1% to hit $15.1 billion.
Going forward, the company might deal with fewer issues related to its data usage. That’s because, the company recently announced that it is focused on becoming a more privacy-focused organization. According to the company CEO, Mark Zuckerberg, the company is now driven by a vision of a privacy-focused Facebook, and wants to reshape the future of social networking. The company is also working with other players to resolve issues with the internet that make privacy a major concern for users.
It is also noteworthy that Facebook user numbers have been on a growth trajectory, which in the long-run translates to better revenues in the future. For instance, Tech Crunch recently reported that Facebook stories now has 500 million users. WhatsApp status has a similar status has a similar number of users and Instagram has also hit 500 million daily users. For context on how fast Facebook users are growing, Facebook stories only came into existence two years ago.
This means it has grown from 0 to 500 million users in just 24 months. The main Facebook platform’s trajectory is also upwards, hovering close to 2 billion users daily. All these numbers point to a company that is clearly on a growth path. That’s because, with a growing user-base, so do the advertising revenues that the company can attract. According to the company COO, 3 million advertisers have so far bought ads on Facebook stories. This goes to show that as Facebook stories, WhatsApp and Instagram continue to grow in adoption, the company’s revenues will grow. This makes its current price drop after setting aside $3 billion, a small bump in the road for a company that the potential for even higher gains going into the future.
With such strong fundamentals, Facebook has a high likelihood of holding up above the 3 month 50 day moving average support at $172.05, and possibly push above key resistance on the 52-week high of $218.62. Therefore, it is not surprising that most analysts consider Facebook a buy. Several of them that previously didn’t have positive expectations of Facebook have changed their outlook. For instance, Nomura upgraded Facebook from neutral to buy, an indicator that they believe in the future of this stock. It’s definitely a stock worth keeping an eye on, in spite of the challenges it is going through, with regards to user data.