Shares of Facebook Inc. FB tumbled as much as 7% in aftermarket trading on Wednesday despite reporting fourth-quarter revenue and earnings that topped consensus estimates.
For the quarter ending December 2019, the Menlo Park, California-based social media giant reported net income of $7.349 billion, or $2.56 in diluted earnings per share, compared with net income of $6.882 billion, or $2.38 in diluted earnings per share, in the prior-year quarter. Revenue of $21.08 billion outperformed the Refinitiv estimate of $20.89 billion, while earnings outperformed the estimate of $2.53 per share.
Company accelerates costs and expenses during 2019, sending full-year net income lower
Despite reporting fourth-quarter revenue and earnings that outperformed estimates, full-year net income of $18.485 billion declined 16% from prior-year net income of $22.112 billion. Facebook said costs and expenses for 2019 totaled $46.711 billion, up 51% from the 2018 costs and expenses of $30.925 billion.
CEO Mark Zuckerberg said during the earnings call that the company is developing several products and initiatives for 2020, which include election integrity, privacy control, the Libra digital currency and a computing platform for augmented reality. Chief Operating Officer Sheryl Sandburg added that Facebook continues investing in efforts to help small businesses grow through advertisements on platforms like Instagram Feed and Instagram Stories.
Despite the list of product initiatives, management warned that investments in data centers, servers, offices and the network continued driving capital expenditures, which increased from $13.915 billion in 2018 to $15.654 billion in 2019. Chief Financial Officer David Wehner said on the call that fourth-quarter 2019 costs of goods sold increased primarily due to depreciation in infrastructure, while selling, general and administrative expenses grew primarily due to increasing legal fees and settlements, including the $5 billion charge from the Federal Trade Commission regarding Facebook’s privacy probe.
Wehner said during the question and answer section of the earnings call that while the expense guidance range of between $54 billion and $59 billion is unchanged from the prior guidance, factors that might increase expenses include the 26% growth in headcount from 2018 to 2019 and continued investments in research and development and innovation efforts.
Stock falls from 52-week high in aftermarket trading
Shares of Facebook traded as low as $206.34 in aftermarket trading, down approximately 7.5% from the closing price of $223.23, near the 52-week high of $223.80.
GuruFocus lists several positive investing signs for Facebook, which include a robust Altman Z-score of 14.45 and operating margins that are increasing approximately 6% per year over the past five years and outperform over 92% of global competitors.
Gurus with large holdings in Facebook include Chase Coleman (Trades, Portfolio)’s Tiger Global Management and Andreas Halvorsen (Trades, Portfolio).
Disclosure: No positions.
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