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Analysis

Is Facebook Doing Really That Badly?

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By Dmitriy Gurkovskiy, Chief Analyst at RoboMarkets

Founded by Mark Zuckerberg in February 2004, Facebook (NASDAQ:FB) is the world’s largest social network. On Thursday, after the earnings report, Facebook stocks went down by almost 20%; the company’s revenue was higher compared to the previous quarter, but the report did not meet expectations. In fact, this happens quite often, but before it did not lead to such plunges. Let’s find out what caused such as a massive selloff. In order to understand it, we’ve got to analyze the major negative events around Facebook since its IPO in 2012.

In June 2013, evidence came that ANB had been gathering information on its users, including their messages and location. The community well understood that such things are common on the web, although companies don’t tend to declare it openly, so that’s why Facebook stocks did not react to this news at all.

A month later, Facebook published a report saying the company had received over 25,000 requests to clarify data collection from 38,000 users; these reports had come from various governments since January 2013, and over 50% of them were accepted and processed. In this case, the market did not show any negative reaction either. In fact, it was quite the reverse, as shares skyrocketed by 26% in June, after the earnings report, and continued rising in August.

In May 2016 Facebook was accused of pubic opinion manipulation, as there was interference in the news algorithm by company employees. The news selection editors were then fired, and new automated algorithms were brought in to replace them; those were criticized afterwards too, though.

Facebook was also accused of intellectual property infringements, unethical attitude towards users, spam, and illegal data processing, but none of these pieces of news could do well enough to prevent the stock from growing. It looked like investors were okay with the company not caring about the ethics, as long as it acquired more users and its profits were high.

In 2018, the Cambridge Analytica scandal, where Facebook was again accused of illegal data processing, triggered a 23% drop in share prices.

In 2015, Aleksandr Kogan created his thisisyourdigitallife app, where he got information on 50 million Facebook users, which he then submitted to Cambridge Analytica that afterwards used them in the US presidental elections.

The UK and the European Parliament then requested data protection information from Zuckerberg, while the US Federal Trade Commission started its own investigation. The stock plunge led to serious losses in the case of some investors, and those issued a legal action against Facebook saying the company had been aware of the data leak but had not taken any appropriate measures and had not admitted it in public.

Of course one can understand why Facebook management feared doing so. Trump was then the synonym of ‘Russian spy’, with Russia being accused of interference in the US elections. If Facebook had admitted Cambridge Analytica had been able to influence the elections, it would have been a suicide.

However, as time passed, the scandal was no longer in the minds of investors. Combined with the Trump rally, US stocks were surging again.

Unfortunately for Facebook management, the scandal did its job a bit later. Rumor had it that some dissatisfied investors were planning to make Zuckerberg resign, although it never was easy, as he was both the Executive Director and the Board Chairman.

Right after that, the UK government announced they were going to fine Facebook $663,000. While this won’t influence the financial state of the company, it was feared that similar measures would be taken by European Parliament and US Congress, where the amounts may significantly higher.

It did not take long for the European Parliament to respond, indeed, as on May 25, the famous General Data Protection Regulation (GDPR) came into effect. This regulation imposed stricter rules of data collection and using them without users’ knowledge. Any GDPR infringement may cost the company 4% of its yearly revenue.

Facebook is headquartered in Dublin, so many of its users (except for US and Canadian citizens) are now governed by this law. In fact, from over 2.0 billion users registered on Facebook, 1.9 billion are under the EU jurisdiction, which makes GDPR a very important issue for the company.

It appeared that Aleksandr Kogan, who created that thisisyourdigitallife app,submitted the data to Cambridge Analytica just let Facebook down. While the data had been always collected this way, this time they were used illegally, which led to those new restrictions.

GDPR is a strict rule, but it does not completely forbid companies from gathering information on users; currently, users are asked at sign whether they agree to submit their data, and in case they don’t, they just won’t be able to log in. So, in fact, nothing has changed much, except for the European Parliament getting the opportunity to fine companies for the new regulation infringements.

So, here’s what we finally have: the scandal did not influence Facebook itself, but led investors to panic. They may even claim their loss through a legal action again, which is quite a common thing in the US. The first action was actually already issued by a certain James Kakuris on July, 27.

Meanwhile, the financial state of Facebook, Inc. needs analyzing to make this puzzle more complete.

Over the last three years, the company’s earnings increased quarter to quarter. Q1 is always a bit of lackluster each year against Q4, but this is quite understandable, as consumer demand increases before Christmas, and the advertisers tend to sped more money.

Among all earnings reports, there was only one when Facebook did not meet expectations. This time, earnings reached $13.23 billion, while the expectations were at $13.36 billion.

If we take all the emotions out and leave only the figures, we’ll see the revenue increased by 42%, the number active users went up by 11%, and ad revenue skyrocketed y 91%, QoQ.

The number of daily users increase is indeed somewhat lackluster, but this is mostly because of the GDPR. Besides, Facebook is reported to have reached its maximum active user number for now and is trying to ‘recruit’ users in other locations, where internet usage isn’t as active. However, the total number of users is at 4 billion for now, which means there is still some more room for growth.

In November 2018, the US will be electing Congress; for Facebook, this means they will have to spend more on security and controlling the damage of the data leak, whether the management wants it or not. This is why the costs are expected to grow by 50% in Q3, which will lead to the revenue going down in both Q3 and Q4.

The bottomline: the company still looks healthy and good for investing, but the quarterly earnings will be going up slower than they used to. Besides, in the lights of the recent fall, more negative news may appear, and this may be pushing prices downward. For now, it may be feasible to just watch how it goes and be ready to buy Facebook low, if this is possible.

Technically, the shares are trading below the 200-day SMA. It was the same after that Cambridge Analytica scandal, but then the price consolidated around the support at $150 and $160, and then went up, with volumes growing during the SMA breakout, which became an additional bullish signal.

This time, the price may well consolidate again before moving directionally, after which investors will be finally able to predict where exactly it will go.

Disclaimer

Any predictions contained herein are based on the authors’ particular opinion. This analysis shall not be treated as trading advice. RoboMarkets shall not be held liable for the results of the trades arising from relying upon trading recommendations and reviews contained herein.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.4 stars on average, based on 7 rated postsHaving majored in both Social Psychology and Economics, I went on to continue my education in post graduate. Later I worked as a team lead of a tech and fundamental analysis lab in the Applied System Analysis Research Institute. This helped me to acquire all necessary skills and experience to become a successful trader and analyst, as well as a portfolio manager in an investment company. I'm a pro in the financial field and the author of articles for various international media. I also hold the position of Chief Analyst at RoboMarkets.




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Analysis

Markets Looking for Direction as Dow Eyes All-Time High

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Global stocks have been trading without clear direction so far today, even after Asia kicked off the day in a bullish fashion, with the Shanghai Composite rallying for the second session in a row following Trump’s tariff announcement. The Nikkei retreated a bit after its recent surge, but Europe followed China’s lead and the majority of US stocks are also sporting gains, even as the Nasdaq is in the red, with the likes of Amazon (AMZN), Microsoft (MSFT) and Apple (AAPL) lagging behind.

Dow 30 Index Futures, 4-Hour Chart Analysis

The Dow, which has been relatively strong in the past weeks is outperforming again, thanks now mainly to the jump in mega-cap banks, and the index is edging ever closer to its all-time high from January which is less than 1% away currently. Should the industrial average set a record high, the correction that started with the February mini-crash would be erased by all the US indices, further widening the divergence compared to the rest of the world.

DAX 30 Index CFD, 4-Hour Chart Analysis

Looking closer at Europe, the DAX is trading at its highest level since the first days of the month, similarly to the EuroStoxx50, but the longer-term downtrends are not in danger yet. British assets were in the center of attention today, since the CPI came in higher than expected in the UK, giving a brief boost to the Pound in the generally choppy environment in the Forex segment.

In the US, the housing market provided the most excitement, with building permits significantly missing the consensus estimate of 1.31 million, coming in at 1.23 million, while housing starts beat expectations with 1.28 million units vs. the 1.24 units expected. The sector remains under pressure from rising rates, and activity is clearly below the cycle-peak earlier this year.

US Yields Continue Surge after the BOJ Meeting

2-year US Treasury Yield, 4-Hour Chart Analysis

The upward pressure on yields is apparent today again, with Treasuries plunging and rates rising across the curve. Today, the 30-, 5-, and 2-year yields all hit multi-year highs, and the 10-year yield is also close to the highs it hit in May, as rate hike odds continue to climb before next week’s Fed meeting.

USD/JPY, 4-Hour Chart Analysis

The Bank of Japan didn’t surprise the market today, sticking to its policy despite some recent tightening rumors, and the Yen is virtually unchanged after the decision, with a slight bullish bias.

Gold Futures, 4-Hour Chart Analysis

Commodities are higher today, even as copper gave back most of its early gains, with gold drifting higher towards the $1210 level and WTI crude oil getting back above the key $70 per barrel level. The precious metal is boosted by the slightly weaker Dollar, while oil gained ground after the larger than expected crude inventory draw in the US.

Featured image from Shutterstock

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.6 stars on average, based on 348 rated postsTrader and financial analyst, with 10 years of experience in the field. An expert in technical analysis and risk management, but also an avid practitioner of value investment and passive strategies, with a passion towards anything that is connected to the market.




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Analysis

Crypto Update: Worst Seems to be Over for Stellar and Cardano

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With so many cryptocurrency pairs losing as much as 90% of their value from this year’s high, it may seem that altcoins are deep in bear territory. Even if you’ve been following our bullish breakout series, the pullbacks in the last two few weeks would have made it easy for you to doubt our claims. However, we stand by our assertion that the overall crypto sentiment is slowly becoming bullish. The altcoins that we cover today serve as additional evidence.

In this article, we show how the worst appears to be over for Stellar and Cardano.

Stellar/Bitcoin Analysis

The last two weeks have been very difficult for Stellar/Bitcoin (XLM/BTC) investors. The pair appears to have breached the uptrend line when it dropped to as low as 0.00002933 on September 11, 2018. At that price level, XLM/BTC lost over 56% of its value from the 2018 high of 0.00006789.

Those who cut their losses after the pair breached the uptrend support would have been badly whipsawed. Stellar/Bitcoin eventually managed to recover the support.

Weekly chart of Stellar/Bitcoin

With the recovery of the support, the outlook is bullish for XLM/BTC. First, the false break of the support is bullish. In most cases, this can ignite a rally to the top end of the range or the resistance.

In addition, the weekly RSI appears to have broken out of its own falling wedge. This is a very good sign that bulls are gaining momentum. Keep in mind, the RSI has been trapped inside this falling wedge since April 2018.

Lastly, the recovery of the support marks the end of the E wave, which is often the last wave down. With bulls taking back the support, we have a convincing case that the worst is over for XLM/BTC.

Cardano/Bitcoin Analysis

Just like XLM/BTC, the last two weeks have also been difficult for Cardano/Bitcoin (ADA/BTC).The pair came off lows of 0.00000969 on September 12, 2018. At that point, the market was down by almost 90% from the 2018 high of 0.00008788.

To many crypto investors, ADA/BTC may be fighting to stay alive. Bears have given their best shot and it may have appeared that the market was down for the count. However, just as ADA/BTC looked hopeless, the market bounced back like a true champion.

Weekly chart of ADA/BTC

As if on cue, ADA/BTC bounced as soon as it hit the support trendline of the falling wedge. This price action emboldened bottom fishers to enter long positions. The increasing demand coupled with decreasing supply due to bearish exhaustion are creating the ideal conditions for a bullish reversal.

As of this writing, ADA/BTC is taking out resistance of 0.000011. Breach of this support will enable the market to reverse its trend and bid goodbye to bear territory.

Bottom Line

Cryptos are slowly stepping out of bear territory. The last few weeks have been difficult but overall, altcoins are becoming bullish. This seems to be the case for both XLM/BTC and ADA/BTC. The worst appears to be over for the two altcoin pairs as they prepare to finally reverse their trend.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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3.6 stars on average, based on 235 rated postsKiril is a financial professional with 4+ years of experience in financial writing, analysis and product ownership. He has passed all three CFA exams on first attempt and has a bachelor's degree with a specialty in finance. Kiril’s current focus is on cryptocurrencies and ETFs, as he does his own crypto research and is the subject matter expert at ETFdb.com. He also has his personal website, InvestorAcademy.org where he teaches people about the basics of investing. His ultimate goal is to help people with limited knowledge of finance and investments to create investment portfolios easily, and in line with their unique circumstances.




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Analysis

Ethereum Making a Decision Where to Go

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Ether is losing its value slightly today on Sep 19, trading at around $207.98. Losing 0.25% on Wednesday is not that surprising after a very hard Monday (although Tuesday was neutral). The crypto was above $210 when the session started, but then failed to stay near the local highs, says Dmitriy Gurkovskiy, Chief Analyst at RoboForex.

On H1, the bearish trendline is at $216, which is confirmed on D1. The resistance levels at $216 and $220 are strong, and they must be broken out in order to go up or at least pull back upwards.

In case Ether fails to find any drivers, it will likely consolidate at around $205. This is exactly where the key support lies, while the resistance is at $216, as mentioned above.

The MACD is negative on D1, moving along the signal line, still giving a moderate buy signal, while the Stochastic is not going anywhere and is not issuing any signal, while being in the positives.

Lately, Ether is very much volatile, with no certain direction. Last week the cryptocurrency spiked 32%, but early this week it reverted and started falling. Ether is vulnerable to the general negative sentiment in the crypto market, although the inside news influence it, too.

People are waiting for the Constantinople update, as well as for the introduction of Ether futures on CBOE which should take place before the end of the year. Meanwhile, low activity in ICOs does no good to Ether’s price either.

Recently, news has come that the Ethereum network reduced its reward for mined blocks, from 3 to 2 ETH. This nearly equals the profits of Ether and Bitcoin miners, so some ETH miners are sure to switch to Bitcoin after this happened, especially those that are unable to cover their costs and expenses (and there are quite a few).

The only positive piece of news now is the pending payment option in MyCrypto wallet designed by Ethereum. This option enables scheduling the payment date and time, which simplifies matters when it comes to recurring payments, such as subscriptions.

Disclaimer

Any predictions contained herein are based on the authors’ particular opinion. This analysis shall not be treated as trading advice. RoboForex shall not be held liable for the results of the trades arising from relying upon trading recommendations and reviews contained herein.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.4 stars on average, based on 7 rated postsHaving majored in both Social Psychology and Economics, I went on to continue my education in post graduate. Later I worked as a team lead of a tech and fundamental analysis lab in the Applied System Analysis Research Institute. This helped me to acquire all necessary skills and experience to become a successful trader and analyst, as well as a portfolio manager in an investment company. I'm a pro in the financial field and the author of articles for various international media. I also hold the position of Chief Analyst at RoboMarkets.




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