3 Things That Will Push Facebook Back to All-Time Highs (FB)

The market is having an historically bad start to the year and Facebook Inc (FB) has in no way been immune — but that doesn’t mean FB has to stay that way.

3 Things That Will Push Facebook Back to All-Time Highs (FB)Shares in FB are down nearly 11% for the year-to-date to pace the Nasdaq Composite, but let’s not lose sight of the bigger picture.

As recently as two months ago Facebook was making all-time highs. And as a longer-term bet, it has been a killer. Over the last 52 weeks, FB gained 25%. The Nasdaq lost more than 4%. The S&P 500 fared even worse, falling nearly 8%.

Go all the way back to the 2012 initial public offering, and the outperformance is huge. Since its very first closing price, Facebook is beating relevant indexes by about 100 percentage points.

That’s a winner.

At this point, however, irrational market participants are selling everything regardless of fundamentals and even technicals. Against that backdrop, it’s going to be tough for FB to reclaim record-high levels, but there are a number of things that will help it get there:

Facebook Earnings

As long as the market selloff continues, there’s no question that Facebook is going to have to wow Wall Street with quarterly earnings if shares have any hope of going on a sustained rally. Helpfully, that’s entirely possible when it reports Jan. 27.

Analysts, on average, expect FB earnings to rise more than 25% to 68 cents a share from 54 cents a year ago, according to a survey by Thomson Reuters. That’s a heck of a bump in a no-growth market.

More importantly, Facebook will almost certainly beat the Street’s earnings forecast. After all, they always do, sometimes by a wide margin. Strong earnings will go a long way toward supporting shares in FB.

FB Details

Of course a Facebook earnings beat won’t impress the market if the nitty gritty details come up short. Hell, you can top earnings with cost cuts.

At FB, all eyes are on daily and monthly active users — especially in mobile. Indeed, Facebook didn’t even have a mobile business three years ago, and now it’s driving the growth story. Mobile is where it’s at.

Facebook beat the Street on these metrics in the prior quarter, but the scope of the excess was just OK. Anything that suggests Facebook is generating accelerating user growth — like if it grand slams these numbers — will give shares a leg-up on getting back to where they were.

FB Patience

More than anything, Facebook bulls need to have patience for shares to start notching new record highs. Equity investors are panicking, and that always leads to indiscriminate selling.

In FB’s case, shares are more exposed to the drawdown than most. That’s what happens after a stock has an incredible run like Facebook did in 2015. Heck, FB was part of the “FANG” stocks — Facebook, Amazon.com, Inc. (AMZN), Netflix, Inc. (NFLX) and Google (GOOG, GOOGL) now Alphabet— that carried the market last year.

The higher they fly, the harder they fall is a typical market dynamic.

Be that as it may, patience will pay off. Along with Google, FB is dominant in digital advertising. Scale, data, technology, you name it, there’s really the only two games in town.

That secular headwind means that, eventually, Facebook will set new records.

As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2016/01/facebook-fb-earnings/.

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