Breakingviews columnists explain why even a decent earnings report couldn't sustain Facebook's sky-high valuation, a trend seen this quarter with other high-priced stocks too.
FaceBook Twitter the list goes on oil companies with sky high valuations that reported decent not great earnings last quarter. And yet saw their stocks drop. Rob tyranny reporter on Facebook's. Earnings last night on which were pretty solid yeah and what's going on yeah well the thing is investors are expecting even more from the company on Friday that sales grew something for 4% and earnings. Far more than that the valuation is what. And and they're very good news or forty times estimated earnings for the year yen and the problem is that the company you know in addition to saying that next year well. Next quarter's revenue growth to be a bit slower only 40% is lower you know Brian has been yeah. The pro little the company said they're gonna start doing heavy investments in the future 35 and ten year plan and and a companies that are gonna talk about. But I really weird slate oil well and now we're pretty interesting but also very expenses that we virtual reality and artificial intelligence you know these these are. Our interest and also money and it's. And I think I think letting some thing. That and seeing here is that there have been we've we looked at some day during sixth until FaceBook circle it seven maybe more by now but right companies that reported earnings this season. You know that would trading above 35 times most of earnings range and all but one of them that says of falling quite. Some quite substantial distance it would. And other arms of bank which woods you know you have to think about it a slight different ways sometimes. So what you go out is what went expectations that time it seems like it it does enormous amount of what you deal in all gonna meet demand that that may have something to do with a slightly more you know the market may be getting a little. People feeling it's expensive rather than teeple have bridge without citing more volatile period in the market recently and so on the investors and no. No not quite buying it really -- what keeps these valuations up though is it is it just sort of an event summit just a momentum investing and they ended in these things are so long term it as well maybe it'll work out and I wanted to be there to please some of that when something you see with Amazon from scissors and other of the big ones as they've got a huge price earnings ratio is for a long time because the PE ratio is tiny. Right you know Jeff Bezos the CO a lot of people believe he runs it'd breakevens invested very heavily and if you really wanted to he could. And it reduced growth and make a profit but I think what you saw Mina and dozens earnings would not that great and there's still right well. Yeah and I think what he sees it may no be so easy for him to attend that breakeven all lost linking. Him. Ahmanson to profit yeah well you know let's talk about FaceBook for economic news you mentioned that really grew the potential. Is there. For even more profit created up mobile advertising and all that I leader the next couple years or business is pretty much set in it's. It's all they have to keep on doing assists sign up more customers get them to use it more often. And I think it's a big gap between the amount of time people spend their phones and how much advertisers are willing to spend it than they should be able to close that it. That said you know that's over the next three years when they start talking about things are in the next ten years that's much more Dicey very few tech companies can actually care what's gonna happen in ten Mark Zuckerberg he has a lot of talent but his powers of prediction investors might wonder whether those are updated test exactly and we're gonna leave it there thank you Richard thank you rob meanwhile stay tuned for more breaking news tomorrow.