Here’s what every major Wall Street analyst had to say about Facebook’s plummeting stock

“Facebook’s second-quarter results and outlook are disappointing, but ‘startling’ is probably a better word. We think few, if any, anticipated this kind of reset. Facebook is battling its own scale & law of large numbers, w/FXN revenue generally decelerating over the past two years. As noted above, there are some specific challenges related to user behavior & policies. We also think Facebook is taking the opportunity to shift expectations to more achievable levels. Until last night’s print, Facebook shares had rallied 43 percent off the late March Cambridge Analytica-induced low in the stock. For comparison, the S&P 500 has risen 9 percent. Yet, Facebook remains in the crosshairs of regulators & politicians, and data/privacy policies and products are just kicking in.”

“We haven’t seen this disastrous a print since the first-quarter-2016 LinkedIn massacre that brought the entire NASDAQ down. The two theories we could come up with as to why Facebook is guiding revenue down severely with the third quarter and fourth quarter now expected to both decelerate high single digits sequentially are: 1) they don’t want to create the perception of getting rich while their product presents issues for society (but why didn’t this happen on the Jan/April calls?), or 2) there are more serious engagement problems with core Facebook that have materialized recently that they are trying to fix. The truth is likely somewhere in the middle. Stepping back, Facebook is now shifting from the top of the sentiment pedestal to very shaky ground.”

“After a pronounced selloff in response to management comments about forward growth and margin trajectory, we now see the risk/reward as balanced for Facebook going forward – strong momentum in Instagram measured against regulatory attention, investments to transform/protect ecosystem, and slowing engagement/more mature ad trends at core Facebook. In our opinion, the new growth drivers (Instagram, Watch, Stories, Messenger/WhatsApp, VR) frankly aren’t big enough over the short/medium term to alter the decelerating growth and margin pressure profile of the P&L.”

“While results disappointed, the stock fell close to 20 percent after hours during the earnings call on Facebook’s forward looking outlook. While the outlook was a negative surprise and cautious read on core Facebook engagement growth trends and long-term infrastructure costs that will linger as overhangs, we expect some support for the stock on the view that there is upside potential vs a low bar, and that revenues could re-accelerate after a usage shift (stories, video) adjustment period.”

“The stories change is most notable as we believe the “stories” headwind is a combination of Facebook’s decision to increase its emphasis on pushing core Facebook users to the stories format at a faster rate (which only has 150 million users, or about 10 percent penetration) and the fact that the stories format (on Instagram and Facebook core) is still monetizing at materially lower rates than News Feed. Indeed, our industry conversations indicate that sponsored stories ad unit completion rates are less than 1 percent (multiples lower than News Feed) in part because users’ ‘tap-based’ stories consumption drives ad skipping. Facebook’s guide down speaks to the growing importance to drive stories engagement/monetization.”

“The company guided to a high single-digit deceleration in as-reported year over year revenue growth in each of 3Q18 and 4Q18 driven by the reversal in FX, the promotion of lower monetizing experiences like Stories, and the impact of data privacy controls on monetization. Currency provided a roughly 5 percentage point tailwind in the first half of 2018, and we expect an approximate 60 basis point headwind in the second half. The company’s promotion of Stories will contribute to the deceleration as well, as the ads in Stories monetize at lower rates than inventory in Feed (negatively impacting overall price per ad), and any Feed inventory used to promote Stories would obviously not be available to paying advertisers, negatively impacting impression growth.”

“We understand the after-hours reaction as Facebook downgrades its growth outlook and introduces considerable new uncertainty, but we see much of this as a self-inflicted move to push the Stories format, which is a long-term positive for engagement. Moreover, Facebook has a strong track record of managing through monetization transitions and coming out stronger on the other side. The ad revenue deceleration causes, in rank order, are: (1) FX headwinds, (2) promotion of the Stories format, and (3) GDPR.”

“The stock could tread water near term but we would take advantage of this transition over the medium term to add to long-term positions.”

“The guided deceleration was a surprise to everyone, but given growth in the first half of 2018, the guide seems extremely cautious. Bears would point to social fatigue on core Facebook with Instagram not making up for the slowdown. Despite deceleration, we think the foundation built through scaled quality connections and best in class tools will drive continued advertiser ROI. We see weakness as a buying opportunity.”

“Facebook delivered underwhelming results with the shortfall spread across metrics and geographies and was more than just a side effect of GDPR (the impact of which the company properly estimated for Europe, however). Consolidated net adds haven’t been this light since the third quarter of 2014, with the biggest disappointments coming from Asia-Pacific (only 21 million sequentially, although Indonesia SIM card issues played a part) and the U.S. and Canada were flat. The outlook for revenue growth deceleration through the end of the year (FX, Clear History, Stories promotion), paired with the expectation for mid-30 percent operating margins in the medium term means numbers are going to be drastically cut here, ours included.”

“Accompanying second-quarter results that were only modestly below expectations, Facebook introduced sobering second half and longer-term guidance that suggests the business will demonstrate slower revenue growth at meaningfully lower margins than what investors had previously expected. While our model resets materially lower, we maintain our Outperform rating, as we lower our Target Price to $200 from $235. Despite rebased expectations, we continue to see value in Facebook’s platform as a unique asset, enjoying a largely unchallenged dominant market position, with shares trading at a reasonable 20x our new 2019 EPS estimate.”