Financial market research and analysis

The Facebook share price since its last earnings release has been volatile to say the least. The shares slumped before quickly rebounding in the wake of its data scandal involving the firm Cambridge Analytica. The 40% plus gain in the Facebook share price since its 2018 low would imply shareholders are confident the scandal will have no lasting effect.

The last all-time high was following the release of Google parent Alphabet’s second quarter earnings. The better than expected financial results at Google were driven by robust revenues from advertising. The reason Facebook shares have been so quick to rebound is that online advertising spending has become a two horse race between Google and Facebook. The logic goes that as Google ad revenues go up, so should Facebook’s. A risk for Facebook this quarter (not reflected in the market) is that Alphabet was the beneficiary of a shift in advertising dollars from Facebook to Google because of the data scandal.

What is Zuckerberg Doing about Privacy

The Facebook user data-based advertising model has had the spotlight put on it since the targeted ads used in the 2016 US election. Since then the company has provided users with tools to avoid receiving unwanted ads and it has exited relationships with customers that were improperly using its platform. So far the feeling is that this has been enough to quell any kind of user uprising over the improper use of their data. CEO Mark Zuckerberg continues to be very concerned with customer experience.  While he has faced an onslaught of criticism from politicians and competitors, he appears to be successfully shepherding the company through a difficult period.

The Numbers

Facebook is scheduled to release its financial results on July 25, 2018. The company is expected to earn $1.72 a share which is the average of the 35-analysts that cover the social media platform. The range of estimated EPS is $1.51 to $1.97. The company is expected to produce revenue of 13.36 billion. The range is $12.82 billion to $14.81 billion. Earnings estimates increased by approximately 6% over the past 90-days. The company has produced better than expected results over the past 2-quarters, beating by 16.8% and 24.2% on the bottom line.

Conclusion

It is clear to see the long term upside potential in Facebook earnings. Facebook has proven that it can generate revenues from its main platform but has yet to monetise its messaging platform, and the hugely popular Instagram and WhatsApp as well as Oculus Riff.  The company is growing fast overseas, it already generates approximately 55% of its revenue from outside the U.S. and Canada. The issue for the share price is that traders have priced in perfection following Alphabets’ results.  On a relative basis, Facebook shares have outperformed other FANG stocks like Netflix and Amazon and has slightly underperformed Alphabet this year.  The share price has significantly outperformed the Nasdaq 100. Traders will need to see a blow out in conjunction with robust guidance to drive the stock price above $220.

Source: TradingView 24/7/2018

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