by Shawn Narancich, CFA
Vice President of Research
Ferguson Wellman Capital Managment
Is Another Summer Swoon on the Way?
Meanwhile, economic data continues to weaken in the month of April as euro zone manufacturing activity declined andEnglandofficially entered recession while domestically, durable goods orders fell in March and 2.2 percent first quarter GDP growth undershot expectations. After the Fed meeting this week in which near-zero interest rate policy was maintained, investors took Bernanke’s post-meeting commentary to read that QE3 is a medicine approved for use if the recent soft patch of economic data metastasizes.
Perhaps the most attention-grabbing earnings headline of the week came from a company that is not yet publicly traded: Facebook. We noted with surprise that the social networking giant reported declining first quarter profits ahead of their planned IPO next month. Although revenues increased 45 percent from a year earlier, they dropped sequentially and earnings fell 12 percent year-over-year. Investor demand for this IPO will still be tremendous, but one has to question whether a rumored $100 billion valuation is appropriate for a business model with only $1 billion in profits that’s already experiencing growing pains.