The stock market moved lower on Thursday morning, with investors mostly pointing to a rising number of deaths in China from the coronavirus outbreak. Some upbeat financial reports from prominent U.S. stocks helped to counterbalance some of the downward impact from the disease, but other earnings results ended up disappointing investors. As of 11 a.m. EST, the Dow Jones Industrial Average (DJINDICES:^DJI) was down 132 points to 28,603. The S&P 500 (SNPINDEX:^GSPC) fell 20 points to 3,253, and the Nasdaq Composite (NASDAQINDEX:^IXIC) was lower by 51 points to 9,224.
Facebook (NASDAQ:FB) was one of the companies whose earnings numbers weren’t able to overcome a sense of foreboding among shareholders, and in its case, even the company’s CFO was mindful of potential challenges on the horizon. Meanwhile, United Parcel Service (NYSE:UPS) weighed in with solid results, but its need for massive investment to keep up with its rivals could hurt its near-term outlook.
Losing face
Facebook shares dropped 7% Thursday morning after the social media giant released its fourth-quarter financial report. Slowing growth has been inevitable as Facebook grows, but the extent of the slowdown and the potential challenges to earnings in 2020 turned investor sentiment more negative.
Image source: Facebook.
Several things about Facebook’s quarter looked good. Revenue growth for Facebook remained strong, rising 25% from year-ago levels. Daily active users rose 9% to 1.66 billion, with 2.50 billion monthly active users representing an 8% increase compared to the fourth quarter of 2018.
However, much of Facebook’s sales gains didn’t make it to the bottom line, as net income rose at just a 7% pace year over year. Higher taxes played a role in the deceleration in earnings growth, but so too did a big rise in overhead expenses and other costs.
Investors seemed to focus on CFO David Wehner’s comments, which centered on the idea that global privacy regulation is likely to have an even bigger negative impact on Facebook’s business in the future than it has so far. That fed shareholders’ worries, and while some see potential in areas like augmented reality, others fear that a business slowdown could continue.
Spending money to make money
Shares of United Parcel Service were down 6% in the wake of its fourth-quarter financial report. With the shipping business changing dramatically in response to rising demand for faster e-commerce-driven service, UPS sees itself having to bulk up its capabilities to remain competitive.
The numbers at UPS were fairly solid. Revenue was up almost 4% on a 7.5% rise in average daily shipment volumes. Adjusted earnings climbed 9% from year-ago levels, with the company seeing improvement in margin levels across all of its segments. UPS’ mix of business was also favorable due to demand for premium services, as next-day air volume was up almost 26% year over year.
However, UPS warned that its earnings for 2020 would reflect weaker economic conditions as well as significant spending on initiatives to serve small and mid-sized businesses more effectively. That includes $6.7 billion in expected capital spending in 2020 to support global facility and automation expansion.
So far, UPS has managed to avoid some of the more direct confrontations that its rival shipping companies have had in dealing with the rise of e-commerce. If its decision to spend up for growth doesn’t pay off, though, UPS could end up justifying the concerns its shareholders are having today.