Major Facebook Revenue Drop Has Long-Term Investors on Alert

Should you buy, bail or hold on to Facebook stock?

Facebook lost more value in a day than any U.S. traded company ever has. Released after the market close on July 25, the Facebook earnings report for the second quarter of 2018 revealed the company missed its revenue target and experienced decelerated user growth.

Facebook’s Stock Price and User Count Dips Are Red Flags

The news caused the Facebook stock price to take a dive. Shares of the social networking company closed at $217.50 — near its 52-week high — but were down nearly 20 percent at $174.21 by the next afternoon on July 26. Facebook was worth $629.6 billion at close on July 25, TechCrunch reported; however, the company’s market capitalization dropped to $504.3 billion, creating a total loss of more than $125 billion. The decline will likely get worse.

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“Our total revenue growth rate decelerated approximately 7 percentage points in Q2 compared to Q1,” said Facebook CFO David Wehner during a conference call with investors. “Our total revenue growth rates will continue to decelerate in the second half of 2018, and we expect our revenue growth rates to decline by high single-digit percentages from prior quarters sequentially in both Q3 and Q4.”

Long-term investors typically stick out quarterly fluctuations, but this historic drop is significant because it also comes on the heels of Facebook’s declining user count — it had its first-ever decline in Europe in 2018 and plateaued in North America in 2017, according to TechCrunch — as well as amid increasing security demands.

Read: How to Use Quarterly Earnings Reports From Amazon, Facebook to Your Advantage

Facebook Down: Should You Sell Your FB Stock?

The social networking giant hasn’t had the best year in 2018, between the Cambridge Analytica Facebook advertising scandal and now this stock price drop. Its projections of a continued decline in 2018 and need for continued investing in security measures might make this the time for long-term investors to reassess whether to ride this out or get out.

Facebook has had revenue dips quarter over quarter before, but none as big as this one since 2011, according to research platform Macrotrends — and even then, year-over-year revenue went up. Revenue has gone up every year since 2010, but it’s not yet clear how long it will take Facebook to recover — if it can.

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If you’re deciding whether to sell your Facebook stock or weather the storm, there’s no easy answer, but the company’s long history of strong historical performance shouldn’t be overlooked. Here are some key stats to remember:

  • Facebook revenue surged from $7.9 billion in 2013 to $40.7 billion in 2017.
  • Revenues soared to an all-time high of $44.6 billion in the first quarter of 2018.
  • Facebook realized $15.9 billion in net income in 2017, making it the most profitable social media company in annual revenues.

Statistic: Facebook's annual revenue and net income from 2007 to 2017 (in million U.S. dollars) | Statista
Find more statistics at Statista.

Instead of following the lead of other investors, take your unique situation into account to decide what’s best for you. If you’re consulting an investment advisor or managing your own investments, consider the following questions:

  • If you sold now, would you earn a profit?
  • If you sell at a loss, would you be able to reap tax benefits?
  • Do you think market sentiment will go up when the dust settles on the Facebook revenue loss?

Key issues to keep an eye on include Facebook’s user growth and how the company improves privacy controls, ad views and other elements that contribute to its popularity as well as its revenue potential, according to TechCrunch.

Click through to read more about when it’s time to sell stocks.

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