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Why Facebook Stock Dropped Today

By Evan Niu, CFA – Oct 30, 2020 at 1:08PM

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The social media juggernaut reported third-quarter results and lost users in North America for the first time.

What happened

Shares of Facebook (META -2.42%) have dropped today, down by 6% as of 12:20 p.m. EDT, after the company reported third-quarter earnings. The results topped expectations, but the social networking giant warned of considerable uncertainty ahead.

So what

Revenue in the third quarter increased 22% to $21.2 billion, easily beating Wall Street's forecast of $19.8 billion in sales. That resulted in net income of $7.8 billion, or $2.71 per share, also ahead of the consensus estimate of $1.91 per share in profit. The digital ad market shrank earlier this year during the initial stages of the COVID-19 pandemic, but quarterly results from Facebook alongside other tech companies show that ad spending is rebounding strongly.

An example illustration of a News Feed post, in various shades of blue

Image source: Facebook.

Investors were also rattled by the fact that Facebook lost users in North America for the first time. Daily active users (DAUs) in that geographical segment fell by 2 million, while monthly active users (MAUs) in North America declined by 1 million. Daily active people (DAP) across Facebook's broader family of apps was 2.54 billion, with family monthly active people (MAP) of 3.21 billion.

Now what

Management warned of uncertainty on numerous fronts going forward. In addition to dealing with macroeconomic concerns related to COVID-19, Facebook is under intense regulatory scrutiny. "Looking ahead to 2021, we continue to face a significant amount of uncertainty," CFO Dave Wehner noted on the conference call with analysts. The finance chief noted that it is facing risks around transatlantic data transfers, as well as the "evolving regulatory landscape."

The Federal Trade Commission (FTC) is reportedly preparing to file antitrust charges against Facebook as early as next month, an action that would be separate from the record $5 billion fine that the agency imposed on the company last year for violating user privacy. Total expenses in 2021 are expected to be $68 billion to $73 billion.

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. Evan Niu, CFA 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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