US tech earnings highlight the difficulties of going it alone

Market Updates

The social media giant handed down a bumper set of results last Thursday, beating analyst expectations across the board.

Overall, Facebook reported quarterly revenues of $28.5 billion (+56%) and net income of $10.3 billion (+101%). The company also said it had 2.7 billion monthly active users as of June 30; while US & Canadian users continued to be the most valuable to the company’s top-line, with the region’s APRU coming in at about $53.

Despite that, the stock was bid lower in the wake of its earnings, opening down 3.2% the next day. Some on social media continued to announce the death of Facebook, though 2.7 billion users might disagree.

A few things are probably in play here.

Equities were on shaky ground last week after the Chinese government cracked down on local tech stocks. Markets rarely move in isolation, and investors – seemingly ever worried about the future – bid risk assets lower amidst this drama.

On a more granular level, it bears remembering that Facebook had been on a tear leading into the quarter and remains up 32% year-to-date. So a period of retreat is not to be unexpected.

But the most boring explanation provided by talking-heads was simply that Facebook’s guidance disappointed the market. Indeed, Facebook’s CFO – David Wehner – warned that the company was set to see its revenue growth ‘decelerate significantly on a sequential basis’ in the third and fourth quarters.

For those paying attention though, this is nothing new nor really unexpected. Facebook recorded ‘weak’ growth during the first-leg of the pandemic, but incredibly strong growth in the back-half of 2020. The comps were always going to be harder, the market was aware of this, and this issue isn’t exclusive to Facebook.

Now whether you’re bullish or bearish on Facebook, these latest earnings highlight a distinctively unique problem for individual investors.

At the end of the day, great results don’t necessarily translate into great trades. How much do you think Facebook would have had to beat estimates by for its stock to rise? Impossible to say. There’s simply too many variables in play. You can’t predict what the market will do: people are inherently too unpredictable.

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