I thought people would care about the privacy issues that erupted earlier this year. In April, the Cambridge Analytical scandal stole the headlines, and it was serious stuff -- Facebook shared user information to a political consulting firm without permission.
It seemed I'd overestimated how much people would care about the misappropriation of their personal data. I thought they'd be furious, but Facebook bottomed shortly after that news became public, and the stock proceeded to climb by about 45%.
Now it seems that Facebook has been negatively impacted by this scandal. A key metric, daily active users, fell from 1.49 billion to 1.47 billion. In addition, revenues came up short of estimates. The company announced that its expenses are skyrocketing.
Facebook, an Action Alerts PLUS holding, plummeted further when it announced that future revenue growth would decelerate. Expense growth is anticipated to exceed revenue growth in the near future.
Where will Facebook find support? The stock traded below $170 after hours last night, which places Facebook within a gap that occurred on April 26 (point A). In order to fill that gap, the stock should continue falling to the $160 area. Traders could look to buy in that area or sell a put that will obligate them to purchase the stock at an even lower price.
In what seems like an attempt to deflect attention from its daily active user figure, Facebook introduced a new metric during the earnings call Wednesday night. Now the company reports the total number of users across its platforms. Analyst Gene Munster described this as Facebook's attempt to change the conversation, and I couldn't agree more.
This behavior is reminiscent of the late 1990s, when tech stocks became wildly overvalued. Since many of those names were unprofitable, analysts would dream up new metrics, based on figures such as the number of eyes viewing the company's website, in order to justify their bullish recommendations.
The really interesting news here is that shares of Facebook gave no advance warning of any issues. Often, a stock will behave erratically prior to a negative announcement, but that didn't happen. On Wednesday, Facebook actually closed at an all-time high, a very bullish sign. It's safe to say that most investors didn't see this coming.
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