Facebook Inc. shares plunged more than 6% in after-hours trading Wednesday, despite producing better earnings and revenue than Wall Street expected in the fourth quarter.
Facebook FB, +2.50% only has itself to blame, because it just couldn’t live up to its own past performances.
Facebook’s earnings of $2.56 a share were 1.2% higher than analysts’ average expectations, which is the smallest quarterly earnings beat Facebook has ever produced. The company has failed to meet expectations three times, one of which was due to a sudden and unexpected change to its reporting standards, and the other two from recognizing a $5 billion fine across the first two quarters of last year. Other than those quarters, the smallest earnings beat in Facebook’s history before Wednesday was a 1.6% beat in July 2018, when investors subtracted more than $100 billion from Facebook’s valuation in reaction to the earnings report.
Facebook exceeded revenue expectations by less than 1%, the second time in the past five quarters it has done that, but more importantly produced its lowest year-over-year sales growth in history, at 24.6%. Previously, the lowest quarterly revenue growth for Facebook was 26%, in the first quarter of 2019.
Full earnings coverage: Facebook stock plummets after earnings beat, but not by enough
Evercore analysts seemed to hint that investors were expecting quite a bit more than the analysts in a Facebook earnings preview, suggesting that the buy side was expecting revenue growth of 27.5% to 28.5% and margins of 43.5%. Instead, revenue growth came in lower than 25%, and margin was about 42%.
Baird analyst Colin Sebastian gave a nod to the realities facing Facebook in a note just after the numbers were released, writing, “the modest size of the revenue and EPS beat may disappoint some investors accustomed to bigger outperformance.”
All Facebook investors are accustomed to bigger outperformance than what they received in Wednesday’s earnings report. Maybe it is time they get used to less, as Chief Executive Mark Zuckerberg deals with a maturing company in the crosshairs of regulators around the world.