Facebook's stock is down but not out

Facebook's stock is down but not out

Posted: Oct 5, 2021 7:51 AM
Updated: Oct 5, 2021 7:51 AM

Facebook is having a terrible few days. But there are reasons investors may not abandon the company for long.

What's happening: Big Tech shares tumbled Monday as concerns about inflation pushed investors to pare back their exposure to the sector. But Facebook — which suffered an hours-long outage across all its products, including Instagram and WhatsApp — fared the worst.

The social network's stock dropped almost 5%. Microsoft, for comparison, shed about 2%, while Apple lost 2.5%.

Facebook had already been generating headlines for all the wrong reasons. The Wall Street Journal recently published a damning series revealing that the company's own research indicated it was causing social harm. Leaked internal documents showed the company knew about the damage Instagram was causing to teen girls, and that changes to Facebook's algorithm in 2018 ended up surfacing more divisive content, not less.

On Sunday, former Facebook product manager Frances Haugen — the whistleblower who provided the documents — sat down for an interview with "60 Minutes."

"The thing I saw at Facebook over and over again was there were conflicts of interest between what was good for the public and what was good for Facebook, and Facebook over and over again chose to optimize for its own interests," Haugen said.

Clearly, none of this is good news for the company — and yet shares are rebounding 1.5% in premarket trading Tuesday.

What gives? While public sentiment has sharply turned against Facebook in recent years, Wall Street has continued to reward its money-making prowess.

Facebook doubled its profit during the second quarter, netting $10.4 billion. Advertising revenue soared 56% compared to the same period a year earlier.

Shares have rallied more than 19% so far this year, and 46% since companies like Hershey's and Denny's paused ads on the platform as part of the #StopHateforProfit campaign in July 2020.

Big picture: A meaningful, long-term hit to Facebook's stock would require a major shift in advertiser behavior, as well as some big wins from fed-up regulators.

That's not off the table. Facebook warned over the summer that sales growth could slow in the second half of the year, and it's battling a serious effort in the United States to dismantle the company. On Monday, its lawyers asked a court to dismiss an amended antitrust complaint filed by the Federal Trade Commission, claiming there is "no plausible factual basis for branding Facebook an unlawful monopolist."

Recent developments could intensify the pressure. Democratic Rep. Alexandria Ocasio-Cortez said that Monday's outage across platforms wouldn't have occurred "if Facebook's monopolistic behavior was checked back when it should've been."

"Break them up," she tweeted.

That's not all: Haugen — who will testify before a Senate subcommittee on Tuesday — filed at least eight complaints with the Securities and Exchange Commission alleging the company is hiding research about its shortcomings from investors and the public.

But for now, don't expect Wall Street to start dumping large tranches of Facebook's stock. At least, not before it announces its third quarter earnings.

OPEC decision sends US oil prices to 7-year high

The Organization of the Petroleum Exporting Countries is standing by its plan to gradually boost oil output as demand recovers, defying pressure to open its taps wider and delivering another jolt to crude prices.

The latest: OPEC and its allies, including Russia, said after an unusually speedy meeting Monday that they would stick to a previous decision to increase supply by 400,000 barrels per day in November.

That sent Brent crude futures, the global oil benchmark, up 2.5%. They continued to rally on Tuesday, hitting their highest level since 2018. West Texas Intermediate futures, the US benchmark, have reached their highest level in seven years.

"It's not that [OPEC and allies do] not recognize the coming supply shortage," said Bjornar Tonhaugen, head of oil markets at Rystad Energy. "The group is well aware of the global inventory draws, maintenance work and rising demand, but chose to wait until later this year to adopt a bolder supply approach."

What it means: Higher prices are a positive development for crude producers. But for consumers, who were already fretting about inflation, it's a growing concern.

Energy prices in developed countries rose 18% in August, the fastest pace since 2008, according to data released Tuesday by the Organization for Economic Cooperation and Development.

Watch this space: Oil prices could be pushed even higher thanks to the soaring cost of natural gas and coal, which may trigger a scramble for crude to generate power over the winter, UBS analyst Giovanni Staunovo said in a note to clients.

A cold winter in the Northern Hemisphere or fresh supply disruptions could also keep prices from falling, he added.

Another Chinese real estate developer is in trouble

Global investors are increasingly concerned that China's real estate market is a bubble about to burst.

In recent weeks, there's been plenty of obsessing over the fate of Evergrande, the heavily-indebted Chinese property developer that's scrambling to find the cash it needs to survive.

But it's not the only weak link in the system. Fantasia, a Chinese developer of luxury apartments, missed $315 million in payments to lenders on Monday. The company, whose shares were suspended Tuesday, said it's assessing "the potential impact on the financial condition and cash position of the group."

Step back: The news revived fears that debt woes are deepening in China's overextended property sector, my CNN Business colleague Laura He reports. The industry is vital to China's economy, accounting for around 30% of its output.

"The [Chinese] property sector is worrisome," Macquarie Group economists Larry Hu and Xinyu Ji wrote in a research note Tuesday. Property sales in the top 30 Chinese cities plunged 31% in September from a year ago, according to Macquarie's estimates.

Fallout will depend on what Beijing does next. The government is expected to intervene to limit consequences for homebuyers, but could be tougher on the companies themselves as it tries to hammer home a message of financial discipline.

Up next

The ISM Non-Manufacturing Index, which tracks the US services sector, arrives at 10 a.m. ET.

Also today: The Facebook whistleblower's testimony before the Senate Subcommittee on Consumer Protection, Product Safety and Data Security also kicks off at 10 a.m. ET.

Coming tomorrow: Earnings from Constellation Brands and Levi Strauss.

The-CNN-Wire
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Mississippi Coronavirus Cases

Data is updated nightly.

Cases: 512632

Reported Deaths: 10262
CountyCasesDeaths
Harrison34853555
DeSoto33162432
Hinds32556641
Jackson24830389
Rankin22442402
Lee16238242
Madison14874283
Jones14086247
Forrest13741259
Lauderdale12249324
Lowndes11286193
Lamar10644140
Pearl River9707244
Lafayette8827143
Hancock7835132
Washington7550169
Oktibbeha7204138
Monroe6989179
Pontotoc6970109
Warren6849178
Panola6746134
Neshoba6726210
Marshall6653141
Bolivar6440151
Union633897
Pike5924156
Alcorn5862107
Lincoln5525136
George510180
Prentiss500884
Tippah490282
Itawamba4829107
Scott477499
Adams4766125
Tate4748116
Leflore4723144
Copiah455895
Yazoo455591
Simpson4543117
Wayne442772
Covington432895
Sunflower4299106
Marion4265112
Coahoma4227109
Leake413790
Newton395581
Tishomingo381793
Grenada3775109
Stone365666
Jasper340166
Attala337790
Winston317792
Chickasaw313367
Clay311878
Clarke301195
Calhoun284449
Holmes271289
Smith268952
Yalobusha243747
Tallahatchie231453
Greene224749
Walthall221366
Lawrence217840
Perry213356
Amite209557
Webster205148
Noxubee188642
Montgomery181557
Carroll174441
Jefferson Davis173643
Tunica163239
Benton152639
Kemper144941
Choctaw136527
Claiborne134238
Humphreys131139
Franklin124929
Quitman107528
Wilkinson105939
Jefferson96834
Sharkey65121
Issaquena1957
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Alabama Coronavirus Cases

Cases: 845108

Reported Deaths: 16115
CountyCasesDeaths
Jefferson1161242006
Mobile741961379
Madison53291732
Shelby38328368
Baldwin38074589
Tuscaloosa36017641
Montgomery34483781
Lee25557263
Calhoun22585518
Morgan22454406
Etowah20016517
Marshall18781316
Houston17729425
St. Clair16880358
Limestone16138218
Cullman16050303
Elmore15904294
Lauderdale14984306
Talladega14191299
DeKalb12971269
Walker12029380
Blount10715192
Autauga10517157
Jackson10161194
Coffee9415192
Colbert9341208
Dale9018191
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Russell707865
Chilton7018170
Escambia6955143
Covington6933195
Franklin6342108
Chambers5784142
Marion5403130
Dallas5285209
Pike5118109
Clarke484986
Lawrence4826129
Winston4780110
Geneva4642136
Bibb434094
Barbour369480
Butler3434100
Marengo342393
Monroe337066
Randolph334367
Pickens333188
Fayette330085
Henry320666
Hale318389
Cherokee317763
Crenshaw260477
Washington257052
Cleburne254460
Lamar251453
Clay250869
Macon244764
Conecuh192862
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