Facebook Inc (NASDAQ:FB) is scheduled to report its fourth-quarter earnings after market close on Wednesday.
FB stock has performed well over the last year, and the social media giant is expected to post impressive gains that once again exceed expectations.
Word on the Street
Analysts estimate quarterly sales growth of $3.8 billion and annual sales growth of $12.4 billion, which would equate to a quarterly increase near 46% and an annual increase near 57%.
Earnings per share are forecast at 48 cents for the quarter and $1.69 for the year, which would equate to increases of 55% and 92%, respectively. Considering FB stock’s history of beating the Street, this report is sure to be another in a growing line of positive earnings surprises.
However, it’s relevant to note that Facebook stock’s EPS and revenue growth have declined throughout the year. Expenses increased over the course of 2014 — particularly due to the acquisition of WhatsApp in February for $19 billion, and Oculus in July for $2 billion, which raised a number of questions about Zuckerberg’s justification for such exorbitant purchases and his intentions for the future of Facebook.
At the end of the third quarter’s earnings report, management revealed guidance for the fourth quarter and into 2015. Quarterly revenue is expected to increase 40%-47%, while expenses are expected to rise 45%-50% (this range was originally 30%-35%, but was recalculated in consideration of the impact of the WhatsApp purchase).
Facebook Stock’s 2015 Guidance
Zuckerberg noted that annual expenses will jump in the range of 55%-75%, and he described 2015 as a significant investment year. There has been plenty of speculation as to exactly what the CEO’s plans are, but considering how Facebook has expanded in recent years and grown into much more than simply a social media website, the possibilities are endless. The company’s ability to reach hundreds of millions of consumers worldwide gives it an exciting edge with respect to product development and technological evolution (e.g., Oculus Rift).
On that note, Facebook’s Research and Development spending rose 49% during 2014, jumping from $409 million to $608 million. It’s unclear where Zuckerberg plans to spend money in 2015, and the sizable increase has struck a chord with a number of investors.
While the majority of shareholders and analysts remain bullish on FB stock, a growing minority has lost confidence in the social media behemoth — so much so that a French banking and financial services company recently initiated coverage of Facebook stock with a sell rating and target price of only $65.
The firm, Societe Generale, cited decreases in the amount of time smartphone users spent on Facebook as a primary justification for the sell rating. Additionally, the firm described enthusiasm over potential mobile revenue as premature, as it believes the marketplace for mobile apps is quickly becoming saturated.
Considering that, by 2016, as much as 75% of Facebook’s total revenue will likely come from mobile ad sales. If Societe Generale is correct, that could mean serious problems for Facebook stock.
Bottom Line on Facebook Stock
At this point a sell rating for Facebook stock is unwarranted. The average target price of all 48 analysts reporting to the Wall Street Journal is $88.34, even with the French firm’s lowball target of $65. Expect the company to report another solid earnings beat, and expect 2015 to be a year of major expansion and exploration.
As of this writing, Greg Gambone did not hold a position in any of the aforementioned securities.