What to Expect After Facebook's Worst Day in Years

The shares of social media stock Facebook Inc (NASDAQ:FB) plummeted on Monday, suffering their worst one-day loss since March 2014. The ripple effects of the company's data-mining scandal could be felt across the tech sector, dragging FAANG stocks and the Nasdaq into the red, and sending Wall Street's "fear gauge" soaring. What's more, if past is prologue, FB stock could continue to struggle in the short term.

Facebook stock yesterday dropped 6.77% -- its first one-day loss of more than 5% since Nov. 3, 2016, just before the U.S. presidential election. Prior to that, you'd have to go back to Feb. 5, 2016, for a single-session drop of at least 5%. There were no drops of this magnitude in all of 2015, though the equity racked up quite a few in 2014 and 2013. Most of the drops of 5% or more occurred shortly after Facebook went public in May 2012, according to Schaeffer's Quantitative Analyst Chris Prybal.

 

Prior to yesterday, there were 25 one-day drops of at least 5% for FB. Afterwards, the shares went on to average a one-day loss of 1.7%, and were higher just 32% of the time. That's compared to an average anytime one-day gain of 0.1% since its initial public offering (IPO). So far today, Facebook stock is extending that trend, last seen 3.6% lower to trade at $166.32.

One week later, the social media juggernaut was down another 3.1%, on average, compared to an average anytime gain of 0.7%. Two weeks out, FB shares were down 3.4%, on average, and higher just 28% of the time. That's compared to an average anytime two-week gain of 1.5%, with a 59% win rate.

In fact, Facebook stock was in the red, on average, all the way up to two months after suffering a one-day drop of 5% or more. At the two-month marker, the equity was down 0.9%, on average, and higher just over half the time. That's a sharp reversal from FB's average anytime two-month gain of 6.6%, with a 71% win rate.

Three months later, the equity was finally back in the black, averaging a gain of 2.6%. Still, that's roughly a quarter of its average anytime three-month return of 10.5%. Six months out, however, things began to stabilize for Facebook stock, which was higher by 20.8%, on average, and in the black 80% of the time -- roughly in line with its average anytime returns.

In conclusion, if recent history is any guidance, FB's sell-off yesterday could be just the beginning of a bout of short-term underperformance. The equity tends to struggle after one-day drops of 5% or more, and it's now set to close beneath its 200-day moving average for the first time since early 2017. Further, after treading water around the $500-billion market cap area -- right around $173 -- Facebook stock is now south of that level, and beneath former round-number support in the $170 area.

And that's just the technical side of things. From a fundamental standpoint, it's unclear what the long-term ramifications will be of the Cambridge Analytica scandal, with U.K regulators investigating the data breach. Further, Bloomberg reported that the Federal Trade Commission (FTC) is investigating whether Facebook violated the terms of a user consent decree from 2011.