Is it time for Facebook Inc (FB) stock to heat up once again?
With first-quarter earnings set to be delivered after the closing bell on Wednesday, investors are hoping for a repeat of the Q4 earnings report, when Facebook crushed estimates and FB stock surged 15% higher in a single day, hitting all-time highs.
But in the three months since that glorious beat, Facebook shares have been virtually flat. They closed at $109.11 on Jan. 28, the day after its glowing earnings report; on Monday, FB closed at $110.10, up less than 1% since late January.
Let’s see what traders expect from the world’s largest social network when it reports on Wednesday afternoon:
FB Stock: Beat & Raise Required
Facebook shares are up nearly 5% in 2016, easily outperforming the 2% returns of the S&P 500, but still nothing mind-blowing. Truthfully, for Facebook stock to really pop again, it has to raise guidance — that’s first and foremost. Of course, beating revenue and earnings per share expectations also wouldn’t hurt … and if it can beat its “whisper” EPS number, then FB stock is even more well-positioned for a rally.
Analysts expect revenue to jump 48.3% to $5.25 billion; they also see EPS jumping 48% from 42 cents in Q1 2015 to 62 cents in Q1 2016. According to EarningsWhispers.com, the “whisper” EPS number is 65 cents.
The expectations are certainly sky-high. And given the sorts of reports major tech companies have been putting out this earnings season, FB stock is up against the odds. In the past week, International Business Machines Corp. (IBM), Microsoft Corporation (MSFT) and Alphabet Inc (GOOG, GOOGL) have each plunged after severely disappointing investors.
Looking at Facebook’s stock chart, shares have some room to run. The Relative Strength Index reads just 45.64, just below 50, showing shares are in fact a little bit underbought. There is some resistance around the $116 level, but if it breaks through that, well, it would approach its all-time high of $117.59.
The first quarter will be the first one ever that includes revenue from the Oculus Rift, Facebook’s virtual reality headset that retails for $599. Also of interest will be stats on Facebook Video, which is becoming increasingly important to the company’s future as it courts TV advertisers to divert budget to video on its platform.
And as FB stock owners know, advertising revenue is the company’s lifeblood. That’s why Google’s disappointing results should concern Facebook shareholders — there’s a high correlation between FB and GOOG’s advertising revenues; Citi estimates it to be between 98% and 99%.
Facebook is doing some truly amazing things, and frankly I should buy the stock myself, park it somewhere, and leave it to compound for the long run. But going into Wednesday’s report, expectations are high, and the tech sector’s poor Q1 earnings reports don’t bode well.
I don’t presume to know whether Facebook will beat, meet or miss expectations on Wednesday, but I do think FB stock is a solid long-term buy regardless of the earnings outcome.
As of this writing, John Divine did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.
