Facebook Is Now An Aging Growth Story

Feb. 06, 2020 10:14 AM ETMeta Platforms, Inc. (META)43 Comments


  • Facebook's stock may come under considerable pressure as costs spiral higher.
  • Options traders are betting shares fall.
  • The technical chart also points to negative trends.
  • Looking for a helping hand in the market? Members of Reading The Markets get exclusive ideas and guidance to navigate any climate. Get started today »

Facebook's (FB) stock likely isn't finished falling yet. Expenses are soaring and 2020 will be no better. Couple that with decelerating revenue growth, and it is likely to pressure operating margins and earnings growth in the future. Currently, analyst consensus estimates are calling for another year of lackluster earnings growth, pushing the prospects of better growth out to 2021.

Based on that future earnings growth, one could argue that Facebook's stock is no bargain trading at roughly 19.2 times 2021 earnings estimates. Especially given what seems to be a never-ending road of rising expenses, and significant regulatory risks.

Options traders are betting that the shares plunge below $200 over the next few weeks, while the technical chart points to the same discouraging outlook. You can now track all of my free articles on Seeking Alpha and other websites on this Google Spreadsheet I have created.

Slowing Growth, Higher Costs

Analysts' estimates are forecasting the earnings growth rate to slow in 2020 to 7.9%, down from a growth rate of 13.1% in 2019. The slower growth comes as revenue growth is estimated to fall to 21.1% in 2020 from 26.7% in 2019. The slowing revenue growth seems hard to avoid at this point, as the company's number of daily active growth slows, and the law of large numbers takes hold. In a way, the company has now become a victim of its success, something that is inevitable for a growth story.

ChartData by YCharts

But Facebook's slowing revenue growth isn't the problem; slowing revenue growth is an issue that comes with maturity. The piece of the equation Facebook should have plenty of control over is earnings per share, and at this point, they appear to have no control, as costs continue to soar. The company noted total expenses rose by 51% in 2019, nearly double its revenue growth rate

ChartData by YCharts

ChartData by YCharts

ChartData by YCharts

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This article was written by

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Designed for investors looking to stay ahead of the pack.

I am Michael Kramer, the founder of Mott Capital Management and creator of Reading The Markets, an SA Marketplace service. I focus on long-only macro themes and trends, look for long-term thematic growth investments, and use options data to find unusual activity.

I use my over 25 years of experience as a buy-side trader, analyst, and portfolio manager, to explain the twists and turns of the stock market and where it may be heading next. Additionally, I use data from top vendors to formulate my analysis, including sell-side analyst estimates and research, newsfeeds, in-depth options data, and gamma levels. 

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Mott Capital Management, LLC is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future results.

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