Shares fell after the company revealed its spending increased by more than 50% last year.
Facebook’s shares have been on a tear over the last year. After starting the year on a low note, the stock gained 57% in 2019. Whenever a stock is performing that well, investors start to have very high expectations for performance.
On Wednesday evening, Facebook reported its fourth-quarter earnings. And even though the company beat both earnings and revenue guidance, the stock fell by as much as 8% when the market opened on Thursday.
So what happened that caused investors to at least temporarily lose faith in Facebook? Let’s look at the quarterly earnings results to learn more.
An overview of Facebook’s Q4 earnings
Facebook handily beat revenue expectations during the fourth quarter. The company’s brought in $21.1 billion in revenue, which is up 25% from a year earlier. And this beat investor expectations of $20.9 billion in revenue.
The company’s earnings also beat previous guidance, but not by much. Earnings came to $2.56 per share, which is 3 cents higher than analysts were forecasting. And earnings only grew by 8% from a year earlier.
But for investors, the real disappointment came when they got a look at Facebook’s expenses. Facebook reported a 51% increase in expenses, which were largely related to improvements the company is making to its privacy and security features.
The company’s operating margin was also slightly lower than expected. Its operating margin narrowed from 45% in 2018 to 34% in 2019.
Plus, management warned that the company could face more challenges with advertising in the coming year. Privacy changes to both the Android and the iPhone could hurt the company’s targeted advertising abilities.
The bottom line for Facebook
The drop in shares is likely just a temporary blip on Facebook’s radar. The company’s monthly and daily active user growth continue to grow, and its average revenue per user continues to increase.
Over the past couple of years, Facebook has been repeatedly criticized for how it handles data privacy for its users. And the company seems to be taking these concerns seriously and taking steps to remedy the situation.
CEO Mark Zuckerberg summed this up by stating, “I want us to build a reputation on privacy that’s as strong as our reputation already building good, stable services.”