Facebook warned everyone that bad news was coming: second-quarter profits

---

Facebook has not had a worse quarter than last night since it was released in 2012, according to Wall Street badysts and the city this morning. Their titles are almost brutally comic:

• New Existing Crisis – Credit Suisse
• FB Lance Of Napalm On Fire – Barclays
• Éva The Kitchen Sink – Jefferies
• Worse Than Expected – Cowen
• Hard prospects, but largely self-inflicted – Deutsche Bank
• Outlook suggests growth "Wall" in sight – Pivotal
• Bombshell Guidance – Macquarie
• Total Reset; Reconstruction of Major Management Credibility – Stifel
• Taking a Break from Being Friends – UBS

Facebook stock plunged nearly 24% last night after CEO Mark Zuckerberg warned of slowing revenue growth . Outside trading hours, the stock was down 20.2% to $ 217.50.

But here's the thing: Zuckerberg, COO Sheryl Sandberg, and CFO David Wehner warned everyone three months ago that bad news was coming in, and no one was listening . Goldman Sachs could have been an exception.

To understand what happened last night, and understand why one of the best performing titles in the history of technology is now completely beaten by the market, you have to come back backward. at the call of Q1 2018 results and read what Zuck et al actually said. Then compare that to last night's call. Once you have done that, you will know that the worst could be yet to come.

First of all, here is what happened three months ago on the Q1 call

Zuckerberg warned everyone what it 's all about. was preparing to do:

1. Focus on security, security and privacy.

2. Prevent damage, hate speech.

3. Restrict developers.

4. Forcing transparency on advertisers

5. Focus on a "meaningful" commitment and tolerate declines of insignificant commitment.

6. Cut the pbadive interaction.

7. "2018 is a year of significant investment."

8. Attention on GDRP: "There is certainly a potential for impact: any change in the data usage capacity for us and our advertisers can affect our margin optimization potential, which could have an impact on our ability to improve long-term prices, and I'll have to look at how it's done over time. "

Basically, none of those priorities were about audience or revenue growth. Most of them are clearly negative for both of these problems.

Sandberg added:

1. Users will have the option of cutting ads.

2. Users get more control over ads.

It's the same thing. More obstacles for advertisers.

Chief Financial Officer David Wehner stated:

1. "Regarding the time spent on Facebook, we do not provide specific updates on this, but I note that Mark has talked about some of the changes we are making to focus on connections rather than consumption. some types of past time such as pbadive video consumption as a result and an increase in areas like sharing.Therefore, we do not really optimize the company on time spent, but rather the type of quality conversations and connections. "

2. "On the GDPR trend, … [we] expect a downward impact on MAU and DAU."

3. "I do not know if we really see an apocalyptic scenario here, I think what we think is that depending on people 's reaction to the controls and settings of the ad, there could be limitations to it. Data usage Depending on how controls are adopted and defined, it is possible that they have an impact on the targeting of our advertisers: if they are less able to effectively target, they will have a lower ROI on their advertising campaigns.We will then make a different bid in the auction, which will ultimately affect how we can realize the price on the prints we sell.

Even again. [19659015] They do not talk about growth They talk about cutting the bad activities Tolerating the reductions of the commitment and the incomes All this is negative for the growth of the revenues and the audience.

nt, look at Q2 2018, the call of last night

Zuckerberg said:

1. More security around the elections.

2. More AI vs bad content.

3. GDPR was bad.

4. Security and Confidentiality

5. The current thread reserved for friends and family – more of that to come.

6. "We will continue to move in this direction."

Zuck is very, very concerned that when people use social, they feel miserable. It focuses only on positive interactions, not total interactions or growth. And this is not about revenue growth or the audience.

Sandberg said:

1. We work on security.

2. "The GDPR has not had any impact on revenues, but we also recognize that it has not been fully rolled out this quarter, which has been very encouraging for us to see that the vast majority of people claimed that they wanted us to use the information they visit, to make their ads more relevant, but, as we look further, we recognize that there is always a risk, and we will monitor closely.

Translation: HE WILL DO THE WORST. Only a third of the impact of the GDPR actually reached Facebook's books . And Europe is Facebook's second largest market – bigger than the United States (a fact that probably does not have the profile it deserves on The Street).

Wehner said:

1. We suffer from the contrary winds of the currency (take this with a pinch of salt – they have currency problems every quarter).

2. Bad advice: "In terms of revenue prospects, our total revenue growth decelerated about 7 percentage points from the first quarter of 2011. Our growth rates in the first quarter of 2011 were Businesses will continue to slow down in the second half of 2018 falling sequentially from previous quarters, both compared to previous quarters, both in the third quarter and in the fourth quarter. "

3." Several factors contribute to this deceleration: for example, we expect the currency to be slightly unfavorable in the second half compared to the headwinds we have seen in recent quarters. lower levels of monetization, and we also give users of our services more choice in terms of data privacy, which could have an impact on our revenue growth. "

4. "We expect deceleration in single-digit numbers for the next quarters. Over what is driving the deceleration, it's a combination of factors … we're going to focus on growing new engaging experiences like stories and promotion And finally, we are giving people who use services more privacy choices, and this impacts both the impacts that could be generated by things like the GDPR As well as other product options we provide that could have an impact on revenue growth. So it's a combination of all of these factors that leads to the deceleration of revenue growth in the second half of the year. "

5. "We had indicated in the first quarter that we were expecting a decline, but we are not providing any guidance on MAU and DAU in Europe on this call."

6. "When you look at the deceleration, the one I called was really Europe where you saw the impact of the currency and, to a lesser extent, the GDPR causing a faster deceleration than in the other regions. "

7. "So, GDPR did not have a significant impact in Q2, partly because of its implementation date, so you see just a month in terms of revenue."

8. "Clearly, from the point of view of safety and security, these are costs that we believe are the best thing for the company to do, but that have not been done. not necessarily affect revenue.

The translation of what Wehner said is: Facebook does a lot of things that do not generate revenue. Everything Facebook told us in the first quarter turned out to be true – it hurt commitment and therefore revenue. And it could become worse! Or at least he can not say it will be better, because the biggest success of GDPR is yet to come. Facebook recorded only one month of GDPR impact in the second quarter. This means that the third quarter will be the first full quarter of the GDPR impact.

Hold your hats.