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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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4.6 stars on average, based on 26 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

Crypto Update: Coins Settle Down After Weekend Pump & Dump

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While crypto bulls had something to cheer about early on during the weekend following a rally attempt in the majors, the move once again failed to improve the technical setup in the segment, and the top coins quickly gave back their gains. Now, most of the coins are trading near the bottom of their short-term ranges and technicals continue to point to the continuation of the bear market.

Correlations are still very high, there is no sign of a developing bullish leadership, and with none of the key coins showing bullish momentum, bulls are facing strong headwinds. While trading volumes and volatility remain relatively low thanks to the range-trading environment a move below primary support could trigger larger moves in the majors soon.

The negative long-term trends are still in no danger, and although there is still a slight chance of a failed break-down pattern to develop in the market, odds favor a bearish short-term outcome as well. With that in mind, traders and investors still shouldn’t enter positions here, with our trend model being on sell signals on both time-frames in the case of the majority of the coins.

BTC/USD, 4-Hour Chart Analysis

Although Bitcoin is still relatively stable compared to its most important peers, it gave back all of its weekend gains and fell back below the key $3600 support/resistance level yesterday. Now, BTC is threatening with a break-down below the prior sing low, and given the recent weakness, our trned model is now on a short-term sell signal.

While bulls could still be saved by a move above $3850, the failed rally attempts warn of selling pressure, and a bearish continuation is more likely here. Further strong resistance is ahead between $4000 and $4050, with support zones still found near $3250 and $3000, and traders should still not enter positions.

ETH/USD, 4-Hour Chart Analysis

Ethereum shoed relative weakness during the rally attempt this weekend, and it is now very close to a break below the key swing low, which would likely lead to a move towards the key support zone between $95 and $100. The coin remains on sell single son both time-frames, and with a test of the bear market low near the $80 price level seems likely in the coming weeks.

Strong resistance is ahead just above the current price level and near $130, with further zones at $145, $160, and near $180 while a weak short-term support is found near $112, and the coin’s weakness is a negative sign for the whole segment.

Altcoins Still Weak Despite Rally Attempt

STR/USD, 4-Hour Chart Analysis

While none of the major altcoins broke the key short-term support levels, the overall picture remains bearish and we haven’t seen signs of resilience that would indicate a short-term bottom and the resumption of the counter-trend move.

Stellar, which has been among the bearish leaders towards the end of 2018, is once again showing relative weakness while following the trends in the broader market, should the coin violate the $0.10 level, a quick to new bear market lows would be likely, with the $0.09 level being the only lone of defense for bulls.

XRP/USDT, 4-Hour Chart Analysis

Ripple still seems very fragile from a technical standpoint, and a move below $0.30 looks inevitable in the coming weeks, with a likely test of the bear market low near $0.28. The $32 support/resistance level remains in focus, but given the weak rally attempts and the bearish long-term setup, we don’t expect the coin to get back to the $0.3550 level in the coming period.

Our trend model is still on sell signals on both time-frames, with further strong support found near the $0.26 level, with resistance ahead near $0.3750, and in the key long-term zone between $0.42 and $0.46.

LTC/USD, 4-Hour Chart Analysis

Litecoin is back near the key $30-$30.50 support zone after the volatile weekend, and it also looks ready to dip below that zone, even as the short-term trading range is still intact. The steep long-term downtrend is intact despite the recent counter-trend move, and traders and investors shouldn’t enter positions here, with the short-term setup also being bearish. Strong resistance is ahead near $34.50, $38, and $44 with further support found near $26 and $23.

Featured image from Shutterstock

Disclaimer:  The analyst owns cryptocurrencies. He holds investment positions in the coins, but doesn’t engage in short-term or day-trading, nor does he hold short positions on any of the coins.

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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4.7 stars on average, based on 445 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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GBP/USD Price Prediction: Bulls Reclaim 1.2900, Eyes Locked on Another Retest of 1.3000

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  • GBP/USD bulls pick up momentum to the upside, following generally positive tone to Theresa May’s Plan B statement.
  • Next upside targets for the bulls should they firmly breakdown 1.2900 again, will be the psychological 1.3000 mark.

GBP/USD throughout the session on Monday remained very much elevated. This came as market participants were somewhat maintaining an optimistic view. All of which heading into the British Prime Minister Theresa May’s speech to the House of Commons, on her Brexit plan b. Of course, this had to be drafted again, given her humiliating defeat at the vote last week, on the initial EU withdrawal plan.

Theresa May Plan B

In terms of her details this time round, she will be going back to Brussels, to seek some amendments to her initial agreement. This needs to be done in order to get a plan through another vote in the commons. Looking at some of the GBP bullish takeaways from this statement; she guaranteed rights for EU citizens at several angles, scraping the application fee EU nationals registering in Britain, discussing the backstop with the DUP this week.

To conclude, PM May appears keen in her language to ensure of a soft-Brexit, rather than one that is hard. All of which supported GBP in its push to session highs, at the time, briefly moving back above 1.2900. The price had given up this area on 18th January, when the bears were reversing the run observed on 17th, where GBP/USD touched to big psychological 1.3000 mark again.

Technical Review – GBP/USD

GBP/USD 60-minute chart. Near-term resistance eyed at 1.2900, with bulls locked in on a retest of 1.3000.

GBP/USD at the time of writing continues to trade around the 1.2900 territory. This price did see a brief period cooling, on touted profit-taking post the statement. Near-term resistance can be seen within this price region, but if convincingly broken down again, then there is decent upside potential. Aside from the supply observed here, there isn’t much in the way of the 1.3000 price region.

Given the renewed optimism around Brexit now, this has assisted in maintaining momentum to the upside for GBP. In terms of support to the downside, a strong area of demand should be noted at 1.2850-25 price region. As can be seen via the 60-minute chart view, this has supported the price since 15th January.

Featured image courtesy of 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 112 rated postsKen has over 8 years exposure to the financial markets. During a large part of his career, he worked as an analyst, covering a variety of asset classes; forex, fixed income, commodities, equities and cryptocurrencies. Ken has gone on to become a regular contributor across several large news and analysis outlets.




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Analysis

3 Things You Need to Know About the Market Today

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1, Chinese GDP Growth Slows to Multi-Decade Low

Shanghai Composite, 4-Hour Chart Analysis

When even the strongly PR-optimized Chinese economic releases are showing severe weakness, it’s not at all surprising that the local stock market is in a deep bear market, and even the explosive oversold rally on Wall Street combined with the trade optimism of last week is not enough to meaningfully change the technical setup.

While economic growth slowed to an almost 30-year low on a yearly basis, retail sales and industrial production beat the consensus estimates by a hair, but that wasn’t enough to cause a material rally in equities, with the global sentiment leaning slightly bearish. This week’s most important question will be how risk assets will hold on to their recent gains, with a special attention on China and Europe, which continue to lag behind the US from a technical perspective.

The Shanghai Composite is more than 30% below its bull market highs, while the main European benchmarks are also around 20% below their respective highs, and that’s following one of the strongest short squeezes in history on Wall Street, mind you. The next few days could be crucial for markets, and we now advise caution even for short-term bulls.

2, Stocks Retreat after Friday Ramp with Wall Street Closed

German DAX 30 Index, 4-Hour Chart Analysis

Looking at Europe, the major indices failed to extend their gains from Friday, while US stock futures are also modestly lower after the European close. With the US markets being closed in observance of the Martin Luther King Jr. Day, trading volumes and activity has been predictably low, and things will likely get heated tomorrow, as the earnings season will also continue.

Johnson & Johnson (JNJ) and IBM (IBM0 will report earnings tomorrow, and all eyes will be on their overseas numbers and guidance amid the global economic slowdown. We had some negative reports regarding the US-Chinese trade talks, concerning the sensitive issue of Intellectual Property, and we still think that even though an agreement is likely in the coming months, implementation and enforcement will be borderline impossible.

3, Oil Tests December High

WTI Crude Oil, 4-Hour Chart Analysis

While risk assets, in general, had a slightly bearish half-session crude oil kept on pushing higher following Friday’s move to new correction highs, with the WTI contract entering the resistance zone that capped the December consolidation. The crucial commodity, which has been slightly lagging US stocks from a technical perspective is still squeezing late shorts, but we expect a short-term top very soon, possibly after a stop hunting rally above the $55 per barrel level.

What’s sure, is that we wouldn’t be buyers at these levels, even in light of the OPEC production cut, since over-supply remains a major issue, and the increase in US output continues. That said, the short-term uptrend is intact and the topping process could take a while, but we will keep a close eye on the day-to-day price action following the 25% rally off the December lows.

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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4.7 stars on average, based on 445 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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