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Facebook to Build its First Data Center in Asia for $1B

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Facebook (FB - Free Report) recently announced that it is set to invest around $1 billion into its first-ever Asian data center, which is expected to commence operations in 2022. The “170,000 square metre facility” is also anticipated to create a large number of jobs.

Considering the current trend, it seems the prominent technology companies are increasingly preferring the Asian countries for setting up data centers. Notably, Alphabet’s (GOOGL - Free Report) Google is currently setting up its third data center in Singapore. The first two were built in 2011 and 2015.

However, Facebook’s capital expenditure driven by data center and other facility construction shot up massively to reach $3.5 billion as of Jun 30, 2018. For the second half of 2018, the capital expenditure is expected to be $15 billion.

This is anticipated to negatively impact the financial results of Facebook. Notably, the company has been reeling from the effects of revelation of the Cambridge Analytica data breach since March 2018.

Since the release of dismal second-quarter 2018 results, Facebook stock has lost 23.1% compared with the industry’s decline of 11.9%.

Facebook’s Overall Standings

Facebook reported second-quarter 2018 earnings of $1.74 per share that missed the Zacks Consensus Estimate by a penny. Revenues of $13.23 billion also lagged the Zacks Consensus Estimate of $13.40 billion.

Monthly active users (MAUs) were up 228 million on a year-over-year basis and 38 million sequentially to 2.23 billion. However, the figure lagged the Zacks Consensus Estimate of 2.25 billion.

Notably, the user addition growth rate figure significantly slowed down compared with the first-quarter figure, when Facebook added 260 million users year over year and 67 million sequentially.

Facebook’s sluggish user base growth rate primarily due to the increased concerns over data privacy is a headwind. Moreover, the company’s cautious guidance is anticipated to keep the stock range bound. Facebook now expects expenses to increase at a faster rate as compared with revenues in 2019. For the second half of 2018, the company projects revenue growth rates to decline.

Aggressive investments for the initiatives related to improving ad transparency, removal of fake accounts and curbing fake news would definitely hurt profitability in the near term. Additionally, slower Stories and Messenger monetization would hurt Facebook’s top-line growth. Increasing competition is also a concern for this Zacks Rank #5 (Strong Sell) stock.

Key Picks

A few better-ranked stocks in the technology sector include, Inc. (AMZN - Free Report) and Microsoft (MSFT - Free Report) . While Amazon sports a Zacks Rank #1 (Strong Buy), Microsoft carries a Zacks Rank #2 (Buy).

You can see the complete list of today’s Zacks #1 Rank stocks here.

The long-term earnings growth rate for Amazon and Microsoft is projected to be 26.5% and 12.3% respectively.

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