Facebook Inc (NASDAQ:FB) enters this week’s fourth-quarter earnings report in a peculiar position: Despite the fact that FB stock is trading near all-time highs, Facebook absolutely has something to prove.
That’s because FB has spent the past three months recovering from a rough Q3 report that sent the stock to one of its biggest dips since coming public in 2012. While the company reported a strong earnings beat, Facebook CFO warned about a slowdown in revenue growth for Q4, and said ad load might “come down meaningfully” in the second half of this year.
The news sparked a selloff from which Facebook wouldn’t really recover until the start of 2017. But recover it has — FB stock is up roughly 15% in the past month to trade near all-time highs around $113.
So, what’s in store for Facebook this time around?
If you believe Jefferies analyst Brian Fitzgerald, FB could be sitting on the powder keg that sends Facebook through the price ceiling. Fitzgerald believes Instagram and mobile ad revenues will drive the business forward, and expects Q4 revenues to grow 46% year-over-year to $8.54 billion — slightly ahead of Wall Street’s broader estimates for $8.5 billion. He also projects GAAP profits of $1.05, which are a penny higher than the consensus mark.
“We remain particularly optimistic around Instagram, bottom-funnel ad units like DPAs, and Live video,” says Fitzgerald, whose $175 price target represents 33% upside from here. “While expense growth is a potential concern, FB has a history of under-promising and overdelivering in this area.”
Indeed, mobile is king for Facebook, which crossed the 1 billion mark for “mobile only” active users in Q3. In fact, 84% of the company’s $6.82 billion in ad revenues came from mobile – up from 78% in the year-ago period. At about $5.7 billion, mobile ad sales came in more than 30% higher than total Facebook ad sales in Q3 2015.
Still, if Facebook matches Wall Street’s projections for 45.6% sales growth, that would be down both sequentially from Q3’s 59% revenue expansion, and last Q4’s 52% increase in sales. Which means investors will be looking for other areas of growth.
They could get it in Facebook Live, the company’s somewhat controversial live streaming service that has unwittingly exposed users to real-time torture and suicide videos. Still, CEO believes images and video are the future of Facebook – and the expansion and advertising of Live’s services reflect that plenty.
Facebook will need to show Wall Street something exciting, though, or FB could be in for its second straight quarterly tumble.
Facebook shares reached all-time highs just above $133 in late October. They then dropped but rebounded to the $132 area, but were rejected following the Q3 earnings report. FB then was sent packing to the $114 level, which it fought several times before rebounding into the current rally.
Now, Facebook stock finds itself challenging the $132-$133 area once more, but this time with an overbought Relative Strength Index (RSI) reading in the low 70s.
And from a fundamental perspective, Facebook’s forward price-to-earnings ratio of 25 isn’t nearly on par with the likes of pricey Big Tech stocks such as Netflix, Inc. (NASDAQ:NFLX), but it’s still a little lofty.
At the very least, it’ll be on investors’ minds — especially if Facebook lays an egg Wednesday.
More Earnings in Focus
Apple Inc. (NASDAQ:AAPL), Jan. 31: When Apple reports fiscal Q1 earnings this Tuesday, Wall Street expects the iPhone maker to finally snap its short streak of consecutive revenue declines with a small 2% uptick in sales. Earnings, however, are expected to shrink slightly, by about 2% to $3.22 per share. Naturally, the iPhone 7 and iPhone 7 Plus will be in focus – Q1 covers the holiday season, which typically accounts for the year’s biggest chunk of the iPhone revenue pie.
However, Macquarie Capital’s Ben Schachter thinks Services — which includes the App Store and AppleCare — might be the star of this show:
“The oft underestimated and misunderstood Services segment has the potential to drive ~100 bps [=1%] of overall gross margin expansion per year for Apple. However, if one believes that iPhone units can grow with iPhone 8 and then be roughly stable going forward, we believe Services and Apps will become the growth engine for Apple.”
Amazon.com, Inc. (NASDAQ:AMZN), Feb. 2: Amazon, on the other hand, is expected to keep up its torrid growth numbers when it reports Q4 earnings on Thursday. Profits are expected to improve by 35% to $1.35 per share, while revenues should surge 25% to $44.67 billion. Numerous brick-and-mortar retailers reported difficult holiday seasons, hinting at more gains for the ubiquitous e-tailer.
Also promising is a note from Cowen analyst John Blackledge, who says Prime has “maintained healthy growth.” He pointed toward a Cowen survey suggesting that Amazon Prime’s customer base has grown 22% year-over-year to 50 million. Keep an eye on Amazon Web Services, however, as AMZN’s cloud-based profit generator is having to contend with an increasingly aggressive Microsoft Corp. (MSFT) Azure offering.
Other Important Upcoming Earnings
Tuesday, Jan. 31
- Aetna (NYSE:AET), morning
- Coach (NYSE:COH), morning
- Exxon Mobil (NYSE:XOM), morning
- Pfizer (NYSE:PFE), morning
- Sprint (NYSE:S), morning
- Under Armour (NYSE:UA), morning
- United Parcel Service (NYSE:UPS), morning
- Advanced Micro Devices (NASDAQ:AMD), afternoon
- Electronic Arts (NASDAQ:EA), afternoon
- U.S. Steel (NYSE:X), afternoon
Wednesday, Feb. 1
- Altria Group (NYSE:MO), morning
- Anthem (NYSE:ANTM), morning
- MetLife (NYSE:MET), afternoon
- Symantec (NASDAQ:SYMC), afternoon
Thursday, Feb. 2
- AstraZeneca (NYSE:AZN), morning
- ConocoPhillips (NYSE:COP), morning
- Merck & Co. (NYSE:MRK), morning
- Nokia (NYSE:NOK), morning
- Philip Morris International (NYSE:PM), morning
- Royal Dutch Shell (NYSE:RDS.A), morning
- Sirius XM Radio (NASDAQ:SIRI), morning
- Amgen (NASDAQ:AMGN), afternoon
- Chipotle Mexican Grill (NYSE:CMG), afternoon
- FireEye (NYSE:FEYE), afternoon
- GoPro (NASDAQ:GPRO), afternoon
- Visa (NYSE:V), afternoon
Friday, Jan. 27
