Here's Why the Facebook Share Price Slumped 4% Despite Strong Earnings

Summary:

Facebook's share price slumped nearly 4% on the day despite strong earnings, as the company provides negative forward guidance on revenue growth.

Facebook reported Q2 2021 earning of $3.61 per share, which represented a doubling of the $1.80 earned for the same period a year earlier. This figure also trumped the analysts’ expectations of earnings of $3.01 per share.

So why is the Facebook share price showing a steep fall at the market open this Thursday?

There are two possible reasons for this. In the earnings call, the company provided not-too-optimistic forward guidance, warning of a significant deceleration of total revenue growth year-over-year on a sequential basis, even as it laps periods of increasingly strong growth. Investors did not really like that language and punished the stock accordingly.

The second reason has to do with the deluge of lawsuits the company is battling presently. This Thursday, a court in Germany ruled against Facebook, saying that the company’s action in removing racist posts and blocking the account the posts emanated from was illegal since the company failed to inform the user of the reasons behind the company’s action.

The promotion of hate speech is banned in Germany, which is why Facebook has responded defiantly to the court judgment, saying it would review it while continuing to remove hate speech in Germany.

Facebook’s share price is down 3.83% as of writing.

Facebook Share Price Outlook

Thursday’s slump in the Facebook share price is challenging support at 359.07. A breakdown of this level allows for a leg down to 352.28 (141.4% Fibonacci extension). Additional downside targets may also be seen at 339.29 and 330.00 (psychological support and site of lows of early June 2021).

On the other hand, a bounce from the current support allows bills to retest the 377.5 all-time high, with a clearance of this level bringing in 386.27 and 391.89 as potential price targets for the future.