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Facebook Stock Price and Europe -- What is going on with the Facebook Stock Price!?!?!

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Published on Jul 26, 2012

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Facebook Stock Price and Europe -- What is going on with the Facebook Stock Price!?!?!
In a sign of strength last night, many of the world's major indexes had a decent run up as a speech by European Central Bank President, Mario Draghi, hinted that he was willing to take steps yet unseen to save the faltering Eurozone. It didn't save Facebook though as the Facebook stock price got slammed after their earnings report.
A quick snapshot shows that the S&P 500, the DOW and the NASDAQ finished 1.65 percent, 1.67 percent and 1.37 percent up respectively. In Europe we saw Spain's main index finish up over 6 percent as hopes were sparked that maybe it would not have to follow the same fate as Greece.
The problems in Europe have spread and taken a foothold across the globe over the past two years and the effects have been very evident in recent earnings reports in the U.S., not to mention the slowdown in Asia. So, what happened last night to make investors so jubilant and spark a strong move in the markets?
Recently various countries have been plagued with high borrowing costs, Spain in particular and it has been clear that they could not continue to function while having to borrow at such unsustainable rates. In the past the ECB in their stimulus programs have not purchased high yielding debt like this in an effort to help countries with their debt problems. Last night, the ECB President in his big speech after his trip through Greece, HINTED that the ECB would now target these high yielding sovereign bonds. Doing so would firstly give an extra cash injection to countries in dire need while potentially also driving yields lower. Have we heard all this before? In some ways yes, although the ECB has been reluctant to buy high yielding debt thus far and many investors see this as a vote of confidence that there is now some unity in Europe and a combined desire to save the Eurozone. Hence, we saw the Euro finally gain back some of the ground lost to the U.S. dollar and a rally to the high side for stocks.
Facebook
The moment many had been waiting for arrived last night with Facebook presenting its inaugural earnings report. The company reported a steep slowdown in revenue growth (even though it still had a 32 percent increase in earnings which translates to 1.18 billion U.S. dollars) and didn't really offer anything to investors to give confidence that things would improve over the next quarter. As a result Facebook shares were hit hard falling to $24 dollars in after hour trading.
The reality is hopes were high for Facebook to come through big after their 100 billion IPO which failed to satisfy. Monthly active users still grew but are slowing and the Facebook thus far has failed to take advantage of the surge in mobile usage. The big question is can they find a way to really monetize their users from a mobile point of view. How can they drive advertising from their mobile product? This question has yet been unanswered for investors and with it being such a big market is likely a leading reason for why stocks tanked as hard as they did. Unless Facebook can really find a way to drive revenue from mobile users it is likely the Facebook dream for investors will be dashed for good.
Big Picture
Just in the nick of time as investors were giving in to despair on Europe the ECB President swooped in with a HINT that they may save the day... That is all it seems to take these days to spark a nice little relief rally. We will have to wait and see whether this will turn in action on their part. I still don't think the policies from the last summit have been properly enacted yet! While the Europe effect has been felt globally in earnings report, it seems Facebook is unable to lay its worse than expected earnings report at the feet of Spain and Greece. Many will be watching to see if Zuckerberg can steer his company to take advantage of mobile in the next quarter.

You may also be interested in this video http://www.youtube.com/watch?v=SbLhti...

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