Some pretty astronomical figures have been thrown around in the financial press of late.

On 26 July headlines pointed to $118bn being wiped off the market valuation of social media giant Facebook, while recent research on
UK dividends – the Link Asset Services UK Dividend Monitor report – highlighted a record £30.7bn in ordinary dividends being paid by UK companies in the second quarter.

Journalists look to draw readers to a story and highlighting such seemingly huge sums is one way of selling content and attracting clicks. Your job as an investor is almost the opposite. You need to look beyond these distractingly big numbers to place them in context and in relative terms.

To take the Facebook example, yes the shares fell heavily at the bell after the company downgraded guidance. And, even in percentage terms, 20% is a very substantial fall for a company of Facebook’s size.

The negative market reaction reflected slowing user growth in the wake of the data breaches linked to its controversial association with Cambridge Analytica and new European privacy rules as well as constrained margins as the company spends money on advertising to restore its image and invests in data handling.

Amid a similarly negative reaction to the latest earnings from Twitter some observers are even beginning to question if the social media sector may have topped out.

LOGGING OFF SOCIAL MEDIA GIANTS

Saxo Bank head of equity strategy Peter Garnry says: ‘Facebook, Alphabet/Google and Twitter are synonymous with selling “free services” in exchange for user data and serving online ads, and these companies will find themselves in an increasingly hostile environment from regulators (and perhaps also society as a whole as the pendulum swings back on privacy issues).’

However, Facebook is still trading above where it was when the data scandal initially blew up in March as the intervening optimism that the affair would leave barely a scratch on the investment case has been dashed. Taken at a glance the $118bn figure makes the story seem more cataclysmic then it really is.

Similarly the record £30.7bn identified in the Dividend Monitor report and a forecast for total annual dividends of £97.8bn – also a record – is less impactful when placed in its proper context.

The dividend total would represent an annual increase of 3.2% and compares with the £66.9bn paid out in 2008. However in real terms, factoring in the impact of inflation, the compound annual growth rate in UK dividends over the intervening period is a more underwhelming 1.6%. (TS)

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