Facebook, Inc. announced a much better-than-expected quarterly profit and revenue on Wednesday, buoyed by its aggressive growing mobile ad business. However, shares were seen dropping as market participants traded with caution over the tech giant’s future earnings.
Conversely, the social media company currently focuses on new advertisement features in order to increase its main revenue streams as its five-year anniversary of its initial public offering (IPO) approaches.
Shares of Facebook declined 2.4 percent to US$148.12 at the close of trade, hitting an all-time high of US$153.60 on Tuesday.
After the earnings release, Chief Financial Officer David Wehner said in a conference call that the company’s ad revenue growth is expected to decline over the rest of 2017, citing Facebook, Inc.’s warnings over hitting a limit in “ad load,” or a particular number of ads it can recommend to a user.
Wehner repeatedly cited these warnings in November and in February, but it appears that his speculations has not yet materialized.
Advertisements that play in the middle of the videos or pop-up ads that appear on Facebook’s Messenger app are expected to contribute in the growth, but Wehner and Chief Executive Mark Zuckerberg confirmed that those plans were still in early stages.
In addition, expenses were also expected to significantly increase as much as 40 to 50 percent this year over 2016 levels, putting its future profits in bad shape.
"As we look into 2017 and beyond, there are going to be a number of initiatives we believe are valuable to the community and to the company in the long term that are going to be net negative on our operating margin," Wehner said.
Analyst Josh Olson said share price declined due to Facebook’s spending.
"Investors were hoping for some indication that we would see some relief as the year progressed, and we still could. I think that expense guidance range, left unchanged, is probably what is weighing on shares," Olson said.
The social media giant announced its Q1 2017 earnings report after the close of trade, beating analyst expectations on both the top line and the bottom line. Moreover, it also recorded a strong growth across key operating metrics.
However, the stock price missed the solid earnings report as market participants remained wary over the company’s management commentary.
The chart below illustrates Facebook, Inc. stock movement after reporting its strong quarterly profit and revenue. The stock is currently trading at $153.06 in a light trading volume, but in a bearish tone.
Share prices showed rising windows in the previous sessions, but eventually declined for two consecutive sessions as investors were spooked with the cautious management commentary.
FB stock climbed sharply and slightly changed just recently. RSI at 80.3655 suggests that it has reached its highest possible stance and could therefore drop, despite having a strong quarterly profit and revenue.
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