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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden

Facebook suffers biggest one-day rout ever as shares tumble 19% – as it happened

Facebook has disappointed Wall Street with its latest revenue and user numbers
Facebook has disappointed Wall Street with its latest revenue and user numbers Photograph: Eric Gaillard/Reuters

Amazon’s sparkling-looking results also includes a flurry of new achievements and milestones, from new Fire smart TVs and tablets to a French Alexa, Amazon Prime’s 22 Emmy nominations and some new cloud computing kit.

But analysts really care about the guidance -- which shows that Amazon expects sales and profits to keep surging.

Here’s the details:

  • Net sales are expected to be between $54.0 billion and $57.5 billion, or to grow between 23% and 31% compared with third quarter 2017. This guidance anticipates an unfavorable impact of approximately 30 basis points from foreign exchange rates.
  • Operating income is expected to be between $1.4 billion and $2.4 billion, compared with $347 million in third quarter 2017.

The results are online here.

From Facebook to Amazon....

It’s another big earnings night.

Amazon has just posted a record quarter, with revenues up 39% to $52.9bn. That’s a huge sales performance, but actually $500m less than expected.

But earnings per share have beaten forecasts. Shares have jumped in after hours trading.

Facebook loses $119bn

Boom! It’s official, Facebook has suffered the biggest loss of stock market value in a single day, ever.

Shares in the social media giant just closed down almost 19%. That leaves them at $176.26, down $41.24 in a single painful session.

That wipes more than $119bn off the company’s value, I think, and roughly $15bn off Mark Zuckerberg’s stake.

It means Facebook has (reluctantly) taken the crown of the biggest one-day fall away from Intel.

The news that Facebook missed Wall Street’s revenue and user growth targets last night, and slashed its forecasts, has clearly given traders a jolt.

There’s no relief for Facebook shares, which are now down 19.5% - wiping around $120bn off the company’s value.

Still, for every seller there’s a buyer. So some investors think this is a good opportunity to snaffle a stake in Facebook.

Jeff Henriksen, Founder and Managing Partner, Thorpe Abbotts Capital, explains why:

First, the bad news. The market seems to be questioning the quality of growth seen in the past as Facebook spends more to address many of the concerns surrounding abuses on its platform and makes changes on the back of the GDPR regulations in Europe. This has had a negative effect on both costs and revenue growth and caused the market to question Facebook’s long-term prospects and the quality of its past performance.

“That said, I think the market is missing the larger picture here. First, even with the lowered guidance, revenue is still most likely to grow in the mid to high 30% range going forward. The guide higher in expenses (and lower in margins) reflects an increase in predominantly fixed costs that will scale nicely as revenue continues to grow, so margins—even though they will be lower over the next several years as these expenses ramp—should not be permanently impaired. Ultimately these expenses will improve earnings quality and the sustainability of the business model. We believe that it is more likely than not that Facebook’s earnings will double over the next 5 years and provide a very satisfactory return for long term investors.”

Facebook is still on track to set an unwanted record tonight:

After a very bruising morning, Facebook shares are still down over 18% in New York.

This has pulled the Nasdaq index into the red too; it’s down around 1%, having hit record highs earlier this week.

There’s still a case for investing in Facebook, despite its setbacks and the challenges ahead.

Ben Barringer, equity research analyst at Quilter Cheviot, explains:

“Facebook is making the changes to ensure that its place as the leading social media network is maintained following considerable scrutiny in the press and on Capitol Hill. Facebook’s user base remains large with over 2bn monthly active users and over 1.4bn daily active users. Ahead of the mid-term elections it is vital that it takes action on fake news, any political advertising on Facebook and of course data security. This involves considerable investment in staff and artificial intelligence and these costs will grow faster than revenue for the next 2 to 3 years.

“However for advertisers, the size and targeting offered by Facebook and increasingly Instagram, is highly attractive and this will continue to drive the growth of revenues and profits.”

Facebook founder Mark Zuckerberg has suffered a staggering hit today.

The value of Zuckerberg’s stake in Facebook has fallen by around $15bn today, or £11bn.

That still leaves him with a personal fortune of around $72bn, due to his stake in the social media firm.

This chart from Bloomberg shows how Facebook is facing the biggest loss of market value in cash terms ever:

Biggest one-day losses ever

That $151bn loss is based on Facebook’s shares dropping 24% (their worst point overnight).

Currently they’re still down 18%, which is a loss of around $113bn - so still the biggest rout in history (although that’s not adjusted for inflation).

Wall Street analysts are worried that Facebook suffered a slowdown in user growth last quarter.

The number of North American daily active users on the site remained flat, while the European user base actually shrank -- following the Cambridge Analytics scandal, and new data protection rules.

Facebook user growth
Facebook’s slowing user growth Photograph: Bloomberg TV

Bloomberg point out that several Facebook executives have been selling shares in recent months. A canny move, given today’s rout....

As you can see, Facebook missed several forecasts last night (although earnings per share were better than estimated)

Facebook results

Facebook shareholders are suffering a historic loss of value today:

Colin J Sebastian, analyst at Baird, says Facebook’s share price has been struck by two self-inflicted blows.

Facebook dropped two “bombshells” on the Q2 earnings call, a significant slowdown in revenue growth for Q3/Q4, followed by operating margin declines over the next 3+ years.

Importantly, these are “self-inflicted” issues to a large degree, as Facebook sacrifices core app monetization to drive usage/engagement of Stories.

Lower margins will result from continuing large-scale investments in computing infrastructure and headcount, but without meaningful related revenue streams. While shares are moving to the “penalty box,” we believe after-hours trading already embeds model changes. Maintain Outperform rating.

At one stage, Facebook’s shares were down a hefty 20% - wiping around $125bn off its value.

That’s basically the value of fast food chain McDonalds .

Facebook’s “nightmare” guidance of lower revenue growth and higher costs is causing the rout, says GBH Insights head of technology research Daniel Ives said.

“If you look at their forecast for the second half of the year in terms of user growth, and the expense profile, it refuels the fundamental worries about Facebook post-Cambridge Analytica.”

Facebook shares tumble

Facebook is tumbling in early trading on Wall Street, after the social network giant revealed the true cost of its data scandal last night.

Shares in Facebook have plunged by 18% - an astonishing fall for a company of this size.

They have fallen to $178.40 each, down from $217.50 before the company released its results last night.

Bloomberg reckons this is Facebook’s record one-day fall (unless shares recover during today’s session).

Facebook shares in early trading today

Investors are unfriending the company after it missed revenue and user numbers in the last three months. But the real concern is that Facebook expects to be less profitable in the coming years, as it strives to clean up its network following the Cambridge Analytica revelations.

David Wehner, Facebook’s chief financial officer, spooked investors yesterday by predicting that the revenue slowdown will continue for some time.

Facebook basically admitted that the cost of improving security, and driving out fake news, will make a big dent in profitability.

Crucially, Wehner warned that Facebook’s operating margins will stop from their current rate of 44% (very tasty!) by around 10 percentage points.

These quotes did the damage:

“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.”

“Looking beyond 2018, we anticipate that total expense growth will exceed revenue growth in 2019,”

“Over the next several years, we would anticipate that our operating margins will trend towards the mid-thirties on a percentage basis.”

Reaction to follow!

Facebook shares have been hammered in pre-market trading....as traders prepare for the open of Wall Street....

Facebook shares

Chris Beauchamp, chief market analyst at IG Group, argues that investors shouldn’t totally lose faith in Facebook, despite yesterday’s disappointment.

He writes:

“Perhaps the data scandal is at last beginning to bite in Facebook’s earnings. Certainly, the frequent references to the other platforms available such as Instagram and the new revenue metric of how many people use at least one of the FB apps each month send a message that this is a company looking to find ways of becoming more than just a social media platform.

High expectations can be a remarkable burden, and the reaction is often brutal when they are missed, but the revenue miss was slight, and $13.2 billion is not to be sniffed at. Facebook might have its wings clipped, but it is still a remarkable money-making machine.

Fortune’s David Meyer has a pithy explanation for how Facebook’s latest results disappointed Wall Street last night:

The company announced revenues and daily active user numbers that fell short of analyst estimates ($13.04 billion vs. $13.32 billion for the quarter, and 1.47 billion rather than 1.48 billion) and, more worryingly for investors, it warned that its increasing privacy efforts would hit its growth rate further in the second half of this year.

Indeed, user numbers in North America are flat and those in Europe have actually fallen. So the expectation that Facebook was just going to shrug off Europe’s hard-hitting new General Data Protection Regulation (GDPR), as well as the privacy scandals that have plagued it through much of the year so far, was way off the mark. These things are making a difference, and they will continue to do so.

More here:

Facebook’s stock market woes could go down in stock market history, says CNBC’s Michael Santoli.

Newsflash: The European Central Bank has left eurozone interest rates unchanged, at its meeting today.

That means the headline borrowing rate remains at zero, an all-time low. Banks still face a negative interest rate (-0.4%) for leaving cash at the ECB’s vaults rather than lending it.

The ECB says it expects to leave interest rates on hold until the summer of 2019. It also affirmed that it intends to halt its asset-purchase stimulus scheme at the end of 2018 (a decision it took at its previous meeting).

So no surprises here. President Mario Draghi will face the press in 45 minutes. He can expect questions about when summer starts and ends exactly (a tricky call if we get another heat wave next year).

Market analyst David Jones points out that Facebook’s shares hit record highs yesterday, before the company gave Wall Street a nasty shock after trading ended.

Facebook shares remain on track for a massive slide when trading begins in New York, in less than two hours time.

The stock is down around 20% in pre-market trading, after it missed Wall Street expectations last night and warned that profit margins will be thinner than expected in the years ahead.

This would eliminate all Facebook’s gains this year:

Facebook’s share price over the last 12 months
Facebook’s share price over the last 12 months Photograph: Bloomberg TV

Such a staggering selloff would wipe around $125bn off Facebook’s value, and drag founder Mark Zuckerberg down the list of the world’s top billionaires.

The French government has weighed in, seeking ‘clarification’ on the agreement reached between Juncker and Trump yesterday.

Finance minister Bruno Le Maire sounds concerned that France’s farmers could suffer, declaring firmly that agriculture should “be kept outside the scope of the discussions” on lowering trade barriers.

Le Maire says:

“We have high sanitary, food and environmental standards as well as rules of production to which we are attached and that guarantee the protection and safety of our consumers.

Europe will not compromise on these norms.”

Writing in the New Statesman, Stephen Bush argues that Jean-Claude Juncker outplayed Donald Trump yesterday:

In reality, it’s a remarkable coup for Juncker. The EU is already seeking to buy more gas as part of the Commission’s long-term efforts to wean the continent off Russian energy.

The EU already has zero tariffs on soy in place, and American soybeans are currently at a low price thanks to Trump’s trade war with China making them attractive to European farmers anyway.

But.... that might also threaten the agreement’s viability. The president might rip it up, if he decides he got the rough end of the deal.

One reason why Trump’s White House is so erratic is that the president’s mind changes depending on which advisor is currently in favour: those wanting to avoid a trade war are currently on the up, but that could change.

And that Juncker has conceded very little that the EU hasn’t already conceded in practice may mean that Trump decides he’s been had and that the whole mess is re-opened in the not too distant future.

Britain’s Department for International Trade is hoping that America will soon lift its tariffs on EU steel and aluminium.

In a statement, it says:

“We welcome the agreement by the U.S. and the EU to work together to reduce barriers to trade and to further increase trade and investment,”

“We look forward to progress towards the removal of steel and aluminium tariffs and de-escalation of the tit-for-tat action that could harm businesses and jobs on both sides of the Atlantic.”

US-China trade spat sinks Qualcomm's big deal

The Qualcomm campus in San Diego

Overnight, China has escalated its trade dispute with America by thwarting a $44bn takeover deal.

Beijing regulators sunk chipmaker Qualcomm’s attempted takeover of Dutch rival NXP, by declining to approve the deal.

Without a green light from China, the deal expired as the clocks struck midday in Beijing (midnight in New York) - even though eight other regulators around the globe had signed it off.

This makes Qualcomm the biggest casualty yet of the Trump trade wars. It launched its takeover of NXP in October 2016, so the collapse of the deal is a serious blow.

Qualcomm CEO Steve Mollenkopf admitted last night that the tensions between America and China were scuppering the deal, telling Bloomberg:

“We didn’t see anything in the near-term that would make it worthwhile to change the timing. There were probably bigger forces at play here than just us.”

It’s a reminder to the White House that China can make things difficult for US companies if president Trump continues to impose tariffs on their imports.

Updated

The Frankfurt stock market is leading the charge this morning, as trade war relief ripples through the trading floors.

The German DAX has jumped by 1.4% this morning, or 172 points, to 12,751 . Automakers are continuing to rally, thanks to Trump’s pledge not to impose tariffs on car imports (in the near future, anyway).

The Paris market is also upbeat, pushing France’s CAC index up by 0.7%.

Traders are pleased that the Juncker-Trump talk went rather better than expected, says Connor Campbell of SpreadEx:

While there isn’t exactly much substance to what was announced, with the fact the relationship didn’t worsen being more notable than the plans to negotiate, it was enough to lift the spirits of the previously fearful markets.

Alan Beattie of the Financial Times makes some good points about the EU-US trade announcement in this thread:

A combine harvester collecting soybeans in southern Minnesota.
A combine harvester collecting soybeans in southern Minnesota. Photograph: Alamy Stock Photo

Paul Donovan of UBS isn’t convinced by Juncker’s pledge to buy more American soybeans....

US President Trump tweeted that EU officials were going to buy more US soybeans. EU officials cannot do that. The US is already the largest exporter of soybeans to the EU. There are no subsidies, trade taxes or quotas on soybeans in the EU.

Private farmers decide whether to buy more soybeans or not.

Not everyone is cheering the news that America and Europe will co-operate on trade.

Others noted that while the announcement marks a change in tone, it won’t necessarily stop Trump from moving forward with auto tariffs later this year if he changes his mind.

Phil Levy, a senior fellow at the Chicago Council on Global Affairs, has pointed out that Donald Trump reached similar agreements with China in 2017 - only to hit them with tariffs months later.

Levy explained (via Politico) that the agreement is “better than nothing”, but....

“it doesn’t seem to solve any of the problems the president flagged – trade deficits, tariffs, subsidies.”

“It looks a lot like deals struck with China last year, which of course were a prelude to a full-blown trade war.

Car shares jump on tariff relief

Shares in European car makers are jumping sharply, as the threat of punitive tariffs fades away.

Porsche, BMW, Fiat Chrysler and Volkswagen have all surged by at least 4% in early trading.

Investors are relieved that Donald Trump has agreed not to slap any more tariffs on European imports - at least while officials try to hammer out closer trade ties.

Before yesterday’s meeting, manufacturers was bracing for America to impose 20% tariffs on European car imports, which would have made them much less competitive in the US.

The European auto sector this morning
The European auto sector this morning Photograph: Thomson Reuters

Naeem Aslam of Think Markets says the US and EU presidents managed to stave off a transatlantic trade war yesterday.

Traders do have every right to celebrate Juncker and Trump meeting because the tensions were high before the meeting as it was pretty much clear that we are heading towards a real trade war. But thanks to common sense which prevailed last night, and it eased tensions stoked by threats coming from both side.

Under the agreement, both sides would hold off on other tariffs as the negotiation process continues. The joint statement by leaders did look like a fairy tale, both sides agreed to work towards zero tariffs. For Trump it does not matter what the final deal would like, but for now, it is enough for him to show the world that he delivered on his promise and he brought the Europeans to a point where he thinks that things are fair.

European officials were pleasantly surprised by Donald Trump’s attitude last night, reports the Financial Times:

“I think it was another Trump we saw in there,” said one senior EU official. “He was different from the tweets and the noise, different from all that brouhaha. He was focused and engaged and clearly looking for something to help with the markets.”

Another person familiar with the discussions said Mr Trump was eager to find a solution to what had become a growing problem for both sides. “Anyone who knows Donald Trump knows that he wants to make deals,” said the person.

European stock market have opened higher, as traders welcome the warming of relations between Washington and Brussels over trade.

The Trump-Juncker agreement isn’t really a deal, but it could turn into a game changer.

So says Holger Schmieding of Berenberg Bank, who is reassured that America won’t impose tariffs on EU car imports while negotiations continue.

He writes that the two sides have taken “a step away from the brink”.

The US-EU agreement to talk rather than to slug it out in a tit-for-tat escalation of trade barriers strengthens our base case: despite all the noise, the US will not levy new tariffs on car imports from the EU in the end. Instead, the trade tensions stoked by Trump will ease somewhat as the two sides either strike a deal fast (25%probability) or at least engage in serious negotiations (55% probability). If so, Eurozone business confidence can recover this autumn.

This should allow the Eurozone to overcome its current soft patch with a return to annualised growth rates of around 2% from Q4 2018 onwards.

According to Juncker, he and Trump agreed that the US and the EU should strive in their negotiations to:

  • remove mutual tariffs on industrial goods,
  • reform the World Trade Organization (WTO), and
  • intensify trade in services.

While the EU pledged to import more soybeans and liquefied natural gas from the US, the US will re-assess the tariffs it has already imposed on steel and aluminium imports from the EU. The EU would then lift its retaliatory measures.

However, Trump isn’t “exactly known for consistency”, so the upcoming negotiations could still founder, Schmieding adds.

Updated

The IMF’s managing director, Christine Lagarde, has welcomed Trump and Juncker’s agreement:

“I am pleased to learn that the United States and European Union reached agreement today to work jointly to reduce trade barriers and, together with other partners, strengthen the WTO.

The global economy can only benefit when countries engage constructively to resolve trade and investment disagreements without resort to exceptional measures.”

The agenda: US-EU reach trade truce, with a kiss

US President Donald J. Trump and European Commission President Jean-Claude Juncker last night
US President Donald J. Trump and European Commission President Jean-Claude Juncker last night Photograph: Jim Lo Scalzo/EPA

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

There’s a sense of relief in the markets today, after America and the European Union stepped away from a trade war.

Following talks at the White House, Donald Trump and Jean-Claude Juncker emerged to announce they had agreed to work together towards “zero” tariffs, barriers and subsidies.

Trump declared it was a “very big” day, after Europe agreed to buy more soya beans and natural gas from America. The two sides have also agreed to work together to reform the international rules on trade.

In truth, details are a bit scant -- as we covered in last night’s liveblog, the two sides have mainly agreed to negotiate. But that’s an improvement on threats being fired across the Atlantic over social media.

Importantly, the two sides have agreed not to impose any more tariffs while they keep talking. That removes the threat of new punitive levies on European car imports.

The two men even shared one of Juncker’s famous kisses in the Oval Office - a fitting way to seal the détente.

Germany’s economic affairs minister, Peter Altmaier, has cheered the move, saying it will save jobs.

Analysts are also optimistic, with Adam Cole of Royal Bank of Canada saying:

This is more positive outcome than many had expected.

Also coming up today

Facebook’s shares will get slammed when Wall Street opened, after the social media giant missed forecasts last night. It also warned that profitability will be hit by the cost of cleaning up its platform and fighting election interference.

Wall Street threw something of a wobbly last night, sending Facebook’s shares plunging in after-hours trading.

The European Central Bank is meeting to set monetary policy. No fireworks are expected. The ECB has already agreed a plan to wind down its stimulus programme, and it’s far from ready to raise interest rates.

But still, president Mario Draghi’s press conference could be interesting.

Plus, there are new US trade figures - they might show whether Trump’s tariffs have had an impact.

The agenda

  • 12.45pm BST: ECB interest rate decision
  • 1.30pm BST: ECB press conference with Mario Draghi
  • 1.30pm BST: US trade balance figures

Updated

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