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Why Facebook Stock Jumped Thursday

By Daniel Sparks - Updated Oct 31, 2019 at 12:24PM

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The tech stock's growth surprised investors.

What happened

Shares of Facebook (META -0.51%) rose as much as 5.2% on Thursday as investors digested the social network's strong third-quarter update. As of 12:37 p.m. EDT, however, shares were up only 2.1%.

Investors' optimism for the tech stock on Thursday wasn't surprising. The company crushed analyst estimates for its third-quarter revenue and earnings per share.

Facebook CEO Mark Zuckerberg discusses the company's 10-year roadmap at F8 2018

Facebook CEO Mark Zuckerberg. Image source: Facebook.

So what

Third-quarter revenue was $17.7 billion, up 29% year over year. On average, analysts were expecting revenue of $17.4 billion. EPS of $2.12 similarly soared past analysts' consensus estimate for $1.91. Notably, the company's revenue growth rate represented an acceleration from 28% in Q2.

Facebook's daily active users also rose nicely, increasing by 9% year over year to 1.62 billion.

Now what

Looking to Q4, management continued to forecast a meaningful deceleration in its revenue growth rate. But it now provided more-specific guidance for the period.

"We expect our Q4 reported revenue growth rate will decelerate by mid to high single-digit percentage compared to our Q3 rate," CFO Dave Wehner said in the company's third-quarter earnings call. "This deceleration is largely driven by the lapping of several successful product optimizations in Q4 of last year, as well as ad-targeting related headwinds."

But Wehner said its deceleration in 2020 compared with its fourth-quarter revenue growth rate should be "much less pronounced."

Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. Daniel Sparks has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Facebook. The Motley Fool has a disclosure policy.

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