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Comment by gzer0 | Hacker News Reader

Here are the results that caused this:

  - Earnings per share: $3.67 vs $3.84 expected
  - Revenue: $33.67 billion vs $33.4 billion expected

Facebook also missed estimates with user numbers.

  - Daily Active Users (DAUs): 1.93 billion vs 1.95 billion expected
  - Monthly Active Users (MAUs): 2.91 billion vs 2.95 billion expected
  - Average Revenue per User (ARPU): $11.57 vs $11.38 expected

Future guidance was the biggest miss.

  - Q1 revenue guidance was $27 billion to $29 billion, while analysts were expecting sales of $30.15 billion

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It's not really plausible that the market can predict Facebook's earnings to within 5% and that such a small miss would cause a rational investor to value Facebook 20% lower.

This seems more like a symptom of the market being generally skittish, with a small side of "expected" earnings actually being a low-biased estimate, so it's more like a 10% miss.

it's always like this with earnings reports. pennies can make the difference between 10% moves

"I see a speck of dust on the tire. Minus $100."

Lots of funds are prohibited from trading after hours. There’s also low liquidity in after hours. Very easy to push the price however you want because NMS protections are also off during those hours. Reversal after overreaction like this is one of the strongest market anomalies you can stick to EMH fans.

Stocks are always very sensitive to the slope of the profit curve. FB didn’t just miss earnings they also said next quarter will be lower than projected that’s generally going to see a significant drop.

There are some cascading effect if you look at stocks of other major companies (AMZN, MSFT). I would guess an algorithm balanced these holdings.

It’s not about accuracy. If a stock is priced at a huge multiple to earnings and sales, the market consensus is enormous profit growth for a sustained period. When the slope of the curve moves (or changes direction) the NPV (Net Present Value) of future cash flows drops dramatically.

The miss is also against future guidance. This could be answering a question of “Is Facebook too distracted to grow their core business?”

Anyone who thinks they’re more rational than the market can take the other side of these large moves. (Many quant hedge funds do)

Whoa, thank you! I’d had that same question, and now that makes much more sense.

> If a stock is priced at a huge multiple to earnings and sales...

FBs P/E ratio was well into the value stock territory of ~22 before this dip. They were trading at the lowest multiple of any other big tech company by far, now they're even more insanely undervalued from a fundamentals perspective. I realize that doesn't matter in the age of the meme stock, but personally I'm still pretty bullish in the long term and that's assuming the XR stuff is just a giant money furnace and returns nothing.

Agreed. I was looking at them even before this dip. They are valued so low that even if they simply maintain current earnings relative to inflation they are an OK investment.

For reference the S&P average P/E is ~25.96.

FB at it's worst is growing much faster than average, it's balance sheet is healthier than almost every other company beside MAAG, and yet it is valued below average.

Also for reference, the entire rest of the world outside the US has an average P/E of 14.5 right now.

Make of that what you will.

Also, re: the parent comment, a P/E of 22 would traditionally never be called "value stock territory"...whether or not that valuation is too pessimistic about Facebook's growth prospects.

That PE means it is grossly overvalued, concentrated in a few large tech companies. Saying pe 22 is value territory just illustrates the massively distorted current market.

Historically, around 15 is the mean, not 25

https://www.multpl.com/s-p-500-pe-ratio

at the same time, dont take guidance misses literally out of context. many companies habitually sandbag guidance (so they can “beat” guidance every quarter) and then analysts play kremlinology to figure out what the “real” guidance is.

Plausibility has no part in this, when stocks are "priced to perfection" any blip can cause a large correction in price. I remember linkedIn when it was still public and not owned by MS missed earnings slightly and the stock tumbled 40% in the day after earnings. When you have a sky high valuation and your business model requires ever more additions of users, slowing usage and drops of revenue are a bad thing.

MySpace 2

Seemingly narrow misses often cause large declines. The reason is that management has a lot of ways to guide analysts to reasonable numbers. Like it or not, companies also have ways of stretching to make it work. If the company can’t meet those numbers, even after all of that communication, with all the means available to them, well that’s a bad sign.

If Facebook's earnings growth is 5 percentage points per year lower than previously believed, then after less than five years, that's 20% less profit. Markets extrapolate growth rates into the future, not just the next quarter.

This. People forget markets are forward looking. Forward guidance matters more than a beat/miss on estimates.

Zuck is also kind of saying that their slice of the pie is getting smaller due to competition like Tiktok. That just kills sentiment.

Hard to say if the metaverse will play out favorably or if it is going to just be hype. If I were to tell my past self 10 years ago that this is the world we live in now with EVs and cryptocurrencies etc being mainstream I would certainly not believe it nor would I have bet the farm on Elon or Bitcoin

Stock price changes after earnings are almost always in reaction to changes in future guidance rather than the past quarter's performance.

The real problem is the bad guidance, not earnings. Theyre guiding q1 revenue to be 10% below Wall Street expectations.

2021 was a record year for fund inflows.

Stimulus checks combined with broad accessibility of trading platforms (Robinhood, etc.) led to fund inflows growing 71% https://www.reuters.com/markets/europe/global-markets-etf-gr...

And that's just ETF inflows aside from mutual funds and options markets.

The top recipients, according to the article linked above, were VOO, VTI and SPY. All follow an index that's market-cap-weighed, benefiting top 10 holdings more than the rest of the market.

The explanation I've seen floated is retail investors treating VOO and VTI as their savings account (for the lack of any decent yield opportunities). That money is eventually going to be withdrawn and spent, punishing those top 10 holdings excessively compared to the rest of the market.

> All follow an index that's market-cap-weighed, benefiting top 10 holdings more than the rest of the market.

Inflows into market cap-weighted index funds should spread the gains evenly.

It's so confusing to me see headlines calling this a "huge earnings miss". Revenue was greater than expected, as was ARPU. I get that the users are under, but this seems pretty far from a huge miss, no?

I think it's the guidance that caused the dip.

earnings != revenue

not entirely, but revenue is a huge component of earnings. this might be sort of a miss but not a huge one (from my caveman point of view, but i don't really know what i'm talking about, hence my confusion)

Thy also issued guidance that next quarter will come in under as well. Investors are looking for signs facebook is dying/not worth it.

Slow growth (the low end number on guidance for next quarter is 3% growth) and not making the DAU numbers support that thesis for them.

Live by the growth, die by the growth.

Feel free to do a deep dive on the meaning and nature of earnings estimates, and you'll find it's mostly just a service that exists because it gives the appearance of legitimacy to various financial institutions. Earnings estimates do not come down from God and there's no one single earnings estimate either, different sites and sources will report different estimates. Typically it's just the average or the median of a bunch of guess work done by analysts across a bunch of different brokerages or financial institutions and they exist to give credibility to said institutions.

A basic quantitative analysis of earnings estimates reveals that they are not particularly accurate when compared to the earnings guidance given by the company itself, and in the rare cases where companies provide no guidance, estimates are almost worthless.

All this is to say don't confuse the term "Wall Street estimates" with what people who actually buy and sell stock estimate. The actual people who have skin in the game and face tangible consequences if they're wrong don't take these earnings estimates that seriously, and conversely the analysts who produce these estimates don't have much of any skin in the game themselves and suffer next to no consequences for being wrong.

This is what I've never understood. These estimates are just that, estimates. They are guesses, potentially educated guesses based on some data, but guesses/hopes/prayers none the less.

It's like sports teams and all of the talking heads giving their opinions on the upcoming matches. In sports, it's called betting. But in business, it's called investing. It's the same thing, only one is more widely accepted an legal.

Yea that’s why I don’t understand the big fuss surrounding sports gambling/online poker etc. There’s currently something called the options market, much larger than both those things combined, where people are betting one way or the other on minute differences in a company’s quarterly earnings reports. You want to ban online gambling? Ok fine, I can easily go bet my entire life savings on whether Facebook earnings will be 30 billion or 31 billion next quarter.

But it's not even a difference of billions like 31 to 30. It's these numbers were like the 3rd digit after the decimal different. Sure, in these numbers that's still millions but only single digit millions. It's literally a rounding error depending on least significant digits. In some places, they only had 2 digits. To get to the offsets, they had to increase the accuracy. Literal rounding errors.

> In sports, it's called betting. But in business, it's called investing. It's the same thing, only one is more widely accepted an legal.

One incentivizes people to build iPhones and the other takes money from poor people.

The poor people can also buy stocks in an attempt to "win big". It's just much easier to approach a bookie that doesn't care about status compared to a broker who wouldn't be so welcoming to certain clientele.

The markets reward predictable businesses and guidance often matters more than the current quarter, assuming management has any credibility. Whether that predictability is from the companies own guidance or analyst estimates[1] is fine. If quarter after quarter and year after year a company can't meet or beat (or switches from consistently beating to only consistently meeting), then the stock is often punished. If it misses the current quarter and guides down, the markets typically re-calibrates valuations downward which is what appears to be going on here.

[1] For example, Apple used to play a sandbagging game with their guidance. After a few years most analysts caught on and if Apple didn't beat their numbers by a consistent amount, the stock would get hammered on earnings despite the fact that they beat guidance. When a company consistently sandbags (i.e. basically gives themselves an easy target to hit for the coming quarters/year), analyst estimates tend to matter more.

Curious if there are any good, public datasets out there on company earnings guidance or earnings estimates.

Is earnings guidance typically included within quarterly filings, or is it usually given on earnings calls?

Both. The earnings call is typically just a reading of the filing with a Q&A period at the end where the questions are at best minimally answered.

The reason is that any earnings miss is a signal that Facebook has already peaked and is on its way down and out. Especially considering all the other negative news around it, it might not be able to recover from a tailspin

It underlines the general volatility and uncertainty in the general market rather than a problem of FB.

I guess this is how capitalism works? Continuous growth or die.

Despite having just about every living human as their customer they are expected to grow.

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