Facebook dropped two “bombshells” on the Q2 earnings call, a significant slowdown in revenue growth for Q3/Q4, followed by operating margin declines over the next 3+ years.
Importantly, these are “self-inflicted” issues to a large degree, as Facebook sacrifices core app monetization to drive usage/engagement of Stories.
Lower margins will result from continuing large-scale investments in computing infrastructure and headcount, but without meaningful related revenue streams. While shares are moving to the “penalty box,” we believe after-hours trading already embeds model changes. Maintain Outperform rating.