For Facebook, the fake news, privacy violations, and stolen data came home to roost Wednesday night.
In a conference call after the market closed, the company said it expected revenue growth—Facebook’s be-all and end-all—to actually decrease in the second half of the year.
And not by a little. Chief Financial Officer David Wehner told analysts revenue growth would decelerate “by high-single-digit percentages from prior quarters” in the third and fourth quarters.
That doesn’t mean revenue is going to decline, just that its growth will fall by 7-9% each quarter, a substantial drop. The number of U.S. Facebook users has remained steady, a sign of maturity here.
Starting Wednesday evening, Wall Street went nuts. By Thursday’s close, the stock had fallen almost 19%, erasing $120 billion in market capitalization, the biggest one-day decline for a single stock ever.
The Nasdaq Composite lost 1% on the day and the S&P 500 fell by 0.3%, but the Dow Jones Industrial Average, which doesn’t include Facebook or the other FAANG stocks (Apple, Amazon, Netflix, or Google’s parent Alphabet), actually posted its third straight gain, closing at its highest level since late February.
On Friday morning the Nasdaq fell again, thanks to Twitter’s 16% share price slide.
So, what does Facebook’s fall mean to the other FAANGs and the market as a whole?
Well, we got a partial answer on Thursday after the market closed. Amazon, another FAANG, reported its largest quarterly profit in history—a whopping $2.5 billion, double Wall Street’s expectations. The stock immediately rose 4% in after-hours trading, though it settled down a bit later on.
Actually, Facebook’s stock rout had little effect on the other FAANGs, because these are such different companies in different markets with different business models. The whole idea of FAANGs is more of a marketing concept the way the BRICs (Brazil, Russia, India, China) were during the emerging markets boom of the 2000s.
For the last two years, the FAANGs have dominated the market. Even hardcore value investors, who have lagged growth badly for nearly a decade, have concocted ridiculous rationalizations for including these stocks in portfolios normally stuffed with industrials or financials.
Also, the FAANGs and related stocks like Microsoft have accounted for a disproportionate amount of the overall market’s advance. That can’t continue forever, and when they finally do sell off, these high-flyers will fall and fall hard, no matter how good their businesses are.
Maybe that would be the time to buy one or two of them to comprise a small part of your holdings, but for now just be glad if you didn’t own Facebook but instead broader based funds and ETFs, which rarely suffer these violent, unpredictable swings.