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| From CNBC, Source FactSet |
On Thu, 26th July 2018, Facebook shares plunged from previous day’s close at USD 217.50 to USD 176.26 (down USD 41.24 / 18.96%).
This marks the largest decline of any single stock and of total market value in a single day in stock market history.
Some of the reasons, why Facebook plunged:
1. Over 1 million users deactivated their accounts in Europe in one quarter and more elsewhere.
2. Mark Zuckerberg and his insider colleagues have sold a total of USD 3.9b in Facebook shares that they owned during first half of 2018, since the UK Cambridge Analytica scandal broke in Feb.
3. Out of 46 analysts researching Facebook only 2 have a SELL on it’s rating. One of the main ones with a sell rating is Pivotal Research whose analyst has been correct on calling out declining users. Pivotal dropped their target price to USD 140 yesterday. JP Morgan removed FB from their Focus List yesterday while Morgan Stanley cut target price from USD 215 to USD 185 per share.
Even the perpetual bullish, usually wrong, with deep insider connections and always conflicted Goldman Sachs dropped it’s target price to USD 205 from USD 225.
4. A province in China had approved establishing an innovation hub by Facebook in the morning, however, when Central China in Beijing found out (China is quite decentralized unlike many people may believe), later in the evening, Beijing cancelled the approval. China also cancelled approval for Qualcomm-NXP acquisition at the same time.
5. Increasingly, more revenues are being earned outside USA, hence the USD strength will hurt their income in the months ahead.
6. Every other year, we hear more innovation from Chinese internet players like Baidu, Alibaba, Weibo, Tencent, Baozun etc (where Facebook is not allowed anyways) and with increasing Trump tantrums, Facebook (and various other US corporations) will feel the pressure of declining sales from around the world in their services from China, India, Russia, Brazil, Africa, Latin America, Japan, Canada etc.
7. There are moves afoot since yesterday to remove Mark Zuckerberg as Chairman of Facebook due to his mishandling of all the scandals. Institutional holders and pension funds own a lot shares in Facebook hence they have a lot of power in this ongoing melee. Zuckerberg owns 60% thus yields unusual power on all decisions that needs to be curbed.
Just to put the single largest decline in perspective:
Facebook's one-day $120bn market cap loss is bigger than entire value of:
* Nike
* GE
* Goldman Sachs
* BlackRock
* Starbucks
* Rio Tinto
* Vodafone
* Siemens
* Airbus
* Diageo
* BNP Paribas
* The Kuwaiti stock market
* The Argentine stock market
* The Colombian stock market
Facebook has had a good run over the years, it still made a solid revenue of USD 13.2b in 2Q2018, however, it is no longer a “growth” stock and it’s best days most likely are behind us.
If anyone wishes to buy, let the dust settle for the next week or two, and then consider it unless one is a day trader.
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