$FB - Facebook’s earnings hit by fines and growth slowdown, but investors remain unfazed

If the DOJ investigation goes on too long, though, that may have an eventual impact on the Teflon company 

Authored By THERESE POLETTI

Facebook Inc. has taken a hit of over $5 billion to its earnings in the first half of the year to pay government fines, and on Wednesday it predicted its revenue growth will slow down in the second half of the year.

But investors have barely flinched. Even as the impact from all its privacy controversies and government inquiries is now starting to show up in both the top and bottom line, Facebook FB, +1.14%  continues to be a Teflon company for investors.

Earlier Wednesday, before it announced its second-quarter results, Facebook announced a $5 billion settlement with the Federal Trade Commission and a separate $100 million fine to the Securities and Exchange Commission.

And later, during the company’s conference call with investors, Facebook Chief Financial Officer David Wehner said that he expects revenue growth rates will decelerate on a sequential basis.

“We also expect more pronounced deceleration in the fourth quarter and into 2020, partially driven by ad targeting-related headwinds and uncertainties,” Wehner told analysts. When asked for more details, Wehner cited lower price points for ad impressions and tough comparisons with the previous fourth quarter. “Ultimately it’s going to depend on the supply and demand characteristics in that given quarter,” he said in response to a question by one analyst, who said that some were having a hard time reconciling the tougher comp in Q4.

Facebook shares rose slightly in after-hours trading, and only wavered during the company’s forecast, falling briefly to around $198.30 but then recovering. Its shares closed the extended session at $206.44, up 0.87%.

Facebook’s CFO has been warning investors about slowing revenue growth for more than two years. But now that the deceleration is actually happening, and the company is seeing hits to its net income with hefty government fines, it’s proving to be even more resilient than expected. Facebook stock is up about 55% this year, wrote John Blackledge, a Cowen & Co. analyst, in a note ahead of earnings. “We still find valuation attractive given Facebook’s growth,” he said. “We forecast revenue and EBITDA to both grow at a 15% CAGR [compounded annual growth rate] ’19-’24.”

Investors clearly do not care, at least for now, about Facebook’s issues with consumer privacy, its fines by the FTC, or even a broader investigation by the Department of Justice just announced Tuesday. As long as the ad machine keeps making money and Facebook keeps reporting revenue growth in the double digits, its role in scandals — including the Cambridge Analytica mess — will be looked upon as sideshows by investors.

Of course, the latest, seemingly open-ended, investigation announced by the Justice Department this week could spook some. While it could be a big political grandstanding move by the DOJ ahead of the 2020 presidential election, it’s possible that it will hang over the company, and others in Big Tech, for years. But no matter. At least for now, Facebook appears to be a true Teflon stock.