Facebook (FB) posted fourth-quarter earnings of 17 cents per share after the close of trading Wednesday, beating Wall Street estimates, but the stock struggled on Thursday, opening 6.4% lower. Compare that to Wednesday morning, when Amazon.com opened higher by 9% after posting earnings of 21 cents per share, substantially lower than Wall Street's estimate for 28 cents per share.
Why the double standard? Suspicion abounds that the market, never fully rational, even in the best of times, harbors some kind of grudge (or at least distaste) for Facebook that it does not for Amazon. Those who look for possible explanations for such a grudge need not look extremely hard. To say that Facebook's IPO in May of 2012 was bungled would be putting it mildly. Few investors understand exactly what went wrong, but what many investors do understand is that after all the allegations and mea culpas, they ended up holding Facebook stock worth considerably less than they paid for it.
Then there is the problem of Facebook's CEO. Mark Zuckerberg's status as an icon is due in part to his youth, but neither being young nor being an icon is always a positive. Zuckerberg looks youthful even in comparison to his actual age of 28 years, and when he appears in public, his attire frequently suggests that he came directly from a rugby match, while his demeanor suggests that he is impatient to be off again to attend another.
So why would the market be more favorably inclined towards Amazon? Is it merely that Amazon's Bezos looks and dresses the part? Or does Wall Street remember the late 90's, when Amazon.com was one of many companies riding high on the dot-com wave, and one of the few that wasn't dragged under when the wave eventually broke?
Well, maybe, but it is unlikely that nostalgia would cause 13 brokerages to raise their price targets on a stock. The real reason is more likely in the numbers themselves. In this case, Amazon reported a fourth quarter gross profit margin of 24%, which was higher than the 22% The Street was expecting. Margin expansion is seen as critical to Amazon's long-term success—more so, even, than rising revenue.
The same shoe fits Facebook, but on the other foot. Analysts views were mixed as to the significance of Facebook's entry into the mobile advertising market, but many expressed concern over the company's stated expectation of shrinking margins in the coming year. It would seem then, that with regard to Facebook and Amazon.com, the market was responding this week to one of the most fundamental aspects of business—how much money a company must spend to make money—and may have been behaving more rationally than it initially appeared.
Julian Close has been a professional business writer since the first day of the twenty-first century, having written for PRA International and the United Nations Department of Peacekeeping. He graduated from Davidson College in 1993 and received a Masters of Teaching degree from Mary Baldwin College in 2011. He became a stockbroker in 1993, but now works for Fresh Brewed Media and uses his powers only for good.