Facebook Inc. Chief Financial Officer David Wehner is the Chicken Little of Silicon Valley, yet investors are still acting on his warnings.
For the past five years, Wehner has been saying the sky will fall at Facebook FB, +1.49% in the second half of the year, warning repeatedly of advertising-revenue deceleration, or plateauing and negative impacts from various events. Seriously, just take a look at July 2016, July 2017, July 2018, July 2019 and even July 2020, when Wehner warned that revenue would only grow about 10% in the third quarter (they grew more than 21%).
So, of course, in July 2021, Wehner wailed another warning.
“In the third and fourth quarters of 2021, we expect year-over-year total revenue growth base to decelerate significantly on a sequential basis, as we lap periods of increasingly strong growth,” Wehner said Wednesday, immediately sending Facebook shares south in after-hours trading, as has regularly been the case with his annual mid-summer caution.
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Wehner also warned about the impact of ongoing antitrust litigation and said Facebook expects to see some impact from the changes Apple Inc. AAPL, -1.22% has made to block out identifiers from iPhone users that would let advertisers send them targeted ads.
“We continue to expect increasing ad-targeting headwinds in 2021 from regulatory and platform changes, notably the recent iOS updates which we expect to have a more significant impact in the third quarter compared to the second quarter,” he said.
Wehner warned about the same changes from Apple in July 2020, and Facebook certainly hasn’t had trouble increasing growth since then. Starting with the quarter after Wehner’s last warning, revenue has kept growing at higher rates for four consecutive quarters — more than 21% in the third quarter of 2020, 33% in the fourth quarter, then 47% in the first three months of this year and a whopping 56%, in the quarter reported Wednesday.
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It’s hard to blame Wehner for being pessimistic about Facebook’s future, as the company confronts controversy after controversy and collects powerful enemies from Washington D.C. to Silicon Valley. Many on Wall Street and Main Street have also assumed Facebook’s failings would eventually show up on its balance sheet, only to see profit, sales and shares continue to grow.
So far, Wehner’s warnings have followed a pretty predictable path: Investors sell off, then realize that things are not as bad as he predicted after continued strong growth, and shares continue their march to $1 trillion and beyond. For example, not long after the Cambridge Analytica scandal, shares of the social-media giant plunged 20% when Wehner gave his July 2018 warning that one analyst described as “nightmare guidance.” In the following third quarter, Facebook beat earnings expectations, with revenue a bit below forecasts, and Facebook stock began a climb that put it back above previous prices within a year.
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J. Stern & Co. Chief Investment Officer Christopher Rossbach seems to have figured out the pattern, voicing caution in a Wednesday afternoon note following the latest warning.
“Whilst the company will lap extremely strong growth in the second half of the year and is cautious on the impact of regulatory and iOS changes, we believe that there is still significant growth ahead,” he said.
If you’re a Facebook investor, that is probably the advice to follow: Know that there are always reasons to be concerned about Facebook, but those reasons have failed to produce any long-term financial concerns through several years. The sky is not falling, so stop being afraid of the clouds.
