Facebook and Starbucks Disappoint After Hours
Although we don't believe in timing the market or panicking over daily movements, we do like to keep an eye on market changes -- just in case they're material to our investing thesis.
After posting nearly two weeks of consistent gains following the end of the government shutdown, stocks took a breather today, falling after the Federal Reserve announced its decision to maintain its monthly bond-buying program of $85 billion a month. The Dow Jones Industrial Average tumbled momentarily more than 100 points but recovered moderately to finish down 62 points, or 0.4%. What seemed to jerk the blue chips downward was some surprisingly optimistic statements from the Fed, noting that "indicators of labor market activity have shown some further improvement." That remark could mean that investors will see the taper sooner than expected. Throughout much of the year, the market has taken the counterintuitive approach of rewarding bad news as investors assume that that will force the central bank to keep the stimulus in place longer. Meanwhile, ADP reported just 130,000 jobs were added in October, a lower rate than needed to bring the unemployment rate down, and a check in favor of a longer-lasting stimulus.
Facebook shares spiked briefly after hours as the social-networking giant beat expectations on both top and bottom lines, but finished flat after CFO David Ebersman said the company would not increase the frequency of its ads, which currently show up once for every 20 stories in users' news feeds. Also troubling to investors was Facebook's admission that teens are using the service less, specifically younger teens. Considering the fleeting supremacy of past social-network leaders such as MySpace and Friendster, the decline is a reminder that Facebook, despite its billion-strong membership, has no lock on users' eyeballs. Still, revenue growth of 60% indicates that the company should have several years of growth ahead of it.
Starbucks also reported earnings after hours with shares falling 2.5% despite an excellent quarter. Earnings per share grew 34% to $0.63, topping estimates of $0.60, while same-store sales jumped 7%, an impressive clip for a company of Starbucks' size and age. Still, investors were disappointed by the company's guidance as the coffee chain projected per-share earnings for 2014 of $2.55-$2.65, below the analyst consensus at $2.67. Starbucks shares have surged over the past year, nearly doubling, and its price tag has become inflated along with it, now at a P/E 35. With a valuation like that and the low guidance ahead, the stock may have hit a ceiling for now.
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Fool contributor Jeremy Bowman has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Facebook and Starbucks. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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