Amazon & Marketplaces

Why Wall Street Loves Amazon, Not Facebook

Facebook announced its second-quarter results after business hours on July 25. Amazon posted its results after business hours on July 26.

Facebook’s revenue increased 42 percent from $9.3 billion in the second quarter of 2017 to $13.2 billion this year, $130 million below Wall Street expectations. Facebook reported $5.12 billion in net income for the quarter or $1.74 a share, up 31.6 percent from $3.89 billion or $1.32 a share in the second quarter of 2017. Operating income grew from $4.4 billion in the second quarter of 2017 to $5.9 billion in the quarter ending June 30, a 33 percent increase.

Facebook’s stock price tanked, with shares at a 24 percent decline at one point. Facebook lost more than $123 billion in market value, among the largest one-day losses of market value a company has ever suffered. Amazon’s stock price increased 4 percent.

As of July 27,  Amazon’s market cap was $910 billion at a share price of $1,876. Facebook’s market cap was $521 billion with a $180 share price.

Facebook lost more than $123 billion in market value, among the largest one-day losses…

Amazon’s Q2 Financials

Amazon’s revenue increased 39.3 percent from $37.9 billion in the second quarter of 2017 to $52.9 billion in the second quarter of 2018, slightly below Wall Street’s expectations. Net income increased from $197 million in the 2017 second quarter to $2.534 billion in the quarter ended June 30, a staggering increase of almost 1,200 percent. Amazon reported earnings per share of $5.07, more than double of analysts’ estimation of $2.50. Net operating income grew 39 percent to $52.9 billion in the second quarter, compared with $38.0 billion in the second quarter 2017.

Amazon’s total North American sales rose 44.2 percent to $32.17 billion, much higher than the 27 percent growth rate generated from its international operations, which had net sales of $14.6 billion. The North American segment’s operating income more than quadrupled to $1.84 billion.

Amazon Web Services’ revenue climbed 49 percent year-over-year in the second quarter to $6.11 billion, topping a Wall Street consensus estimate of $5.98 billion. Amazon’s ad division doubled its sales over the same quarter last year. This year, for the first time, Amazon’s revenue includes sales from Whole Foods.

Why Wall Street Prefers Amazon

Wall Street has always been kind to Amazon, waiting patiently for many years for the company to become profitable. Facebook used to be a Wall Street favorite but never to the same extent as Amazon. Facebook’s second quarter financial results were not what rattled analysts. It was the company’s prediction that its revenue would be below expectations for the remainder of 2018.

Wall Street has always been kind to Amazon, waiting patiently for many years for the company to become profitable.

In the earnings call for analysts on July 25, Facebook’s C.F.O. David Wehner said shareholders could expect “revenue growth rates to decline by high single-digit percentages from prior quarters” in the second half of this year. He attributed the downturn to increased capital expenditures on safety and security totaling billions of dollars including thousands of new hires. Wehner also said that Facebook expects expenses to grow 50 to 60 percent from last year, mostly to bolster its security efforts.

Facebook has not executed as well as Amazon and its missteps over the past two years have many people — on Wall Street and in the federal government — calling into question the capabilities of its leadership. The two companies are in vastly different businesses. Facebook confronts issues such as free speech, hate speech, fake news, fake pages, and more complex privacy issues than Amazon.

The Problem with Facebook

Facebook’s slogan for many years was “Move Fast and Break Things,” regardless of the consequences. That attitude may have broken the company. Its disdain for the privacy of its users and its ignorance of how much it had been compromised in the 2016 election interference scandal may prevent it from gaining new users.

Facebook has already lost users in Europe and is struggling to comply with the E.U.’s newly implemented General Data Protection Regulation. User growth was flat in the U.S. and Canada.

While on paper Facebook is a public company, it is actually controlled by one person, Chairman and C.E.O. Mark Zuckerberg. The company has two classes of stock. He and a small group of Facebook insiders own Class B shares that come with 10 votes per share while the Class A shares that trade publicly have only one vote per share.

Thus Zuckerberg and a small group of insiders control almost 70 percent of the voting shares in Facebook. Zuckerberg himself controls nearly 60 percent of the stock. That means that public shareholders have almost no influence over how the company operates. In the past, Zuckerberg has been dismissive of the criticism directed at Facebook. It took a scandal to make him take privacy issues seriously, but whether he can change or allow others in the company to make decisions is doubtful. Perhaps that is why Wall Street has reacted so negatively.

While on paper Facebook is a public company, it is actually controlled by one person … Mark Zuckerberg.

The Elite 5

Amazon and Facebook together comprise 40 percent of a very exclusive group called FAANG — Facebook, Amazon, Apple, Netflix, and Google — Wall Street’s moniker for these well-performing titans. What makes these stocks so important is, as Goldman Sachs reports, 62 percent of the S&P 500’s 4.8 percent 2018 market gain is attributable to just 10 stocks, including these five.

Apple and Amazon are each aspiring to become the first company to achieve a $1 trillion valuation. Apple’s market cap was $956.5 billion at the close of business on July 31 while Amazon’s cap was $876.4 billion, down from its $910 valuation on July 27. Facebook’s market cap was $514.7 billion on July 31.

Facebook’s dive in the last week of July affected all FAANG stocks, all showing declines at the end of business on July 30.

  • Facebook -2.19%
  • Amazon -2.09%
  • Apple -0.50%
  • Netflix -5.70%
  • Google -1.82%

Poor performance by any one of these companies can drag down all the others as well as the entire stock market.

Marcia Kaplan

Marcia Kaplan

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