Facebook (NASDAQ:FB) stock has been the worst-performing of FAANG stocks both year-to-date and over the past year. Shares are down 7.5% and 0.94%, respectively. However, FB stock has been the best performer of the group over the past week.
That’s likely after Snap (NYSE:SNAP) reported better-than-expected earnings, fueling a massive upside move. Now investors are hoping that Facebook can do something similar.
The company will report its earnings after the close on Wednesday, April 29. However, keep in mind that FB stock isn’t the only big name reporting this week. Also reporting on the 29th is Microsoft (NASDAQ:MSFT). Alphabet (NASDAQ:GOOGL, NASDAQ:GOOG) reports on the 28th, and Apple (NASDAQ:AAPL) and Amazon (NASDAQ:AMZN) both report earnings on the 30th.
Facebook Earnings
Snap stock has now doubled from the March low, mainly fueled by its 28.5% post-earnings gain. I obviously wouldn’t be looking for such a big move from Facebook, particularly as it, too, has already rallied on Snap’s results. In fact, the whole space has.
Twitter (NYSE:TWTR), Pinterest (NYSE:PINS) and even Alphabet have all rallied on the results. Snap reported a loss of 8 cents per share, which was in-line with expectations. Revenue grew 44.3% year-over-year to $462.5 million and beat estimates by $42 million. Daily users also grew 20% to 229 million.
Can Facebook replicate the bullish post-earnings takeaway?
A New York Times report earlier this month highlighted the hit to advertising budgets. Barry Diller, Chairman of advertising titan IAC (NASDAQ:IAC), also said in an interview how rough the landscape is right now. Barron’s didn’t take it easy, either. Specifically regarding digital ads, they said that higher traffic isn’t enough to offset lower ad spending.
Perhaps most importantly, Facebook itself has noted the decline. The company said, “We don’t monetize many of the services where we’re seeing increased engagement, and we’ve seen a weakening in our ads business in countries taking aggressive actions to reduce the spread of COVID-19.”
So far, estimates have been dropping as a result. Analysts now expect earnings of $1.75 per share this quarter, down from $1.94 just 60 days ago. However, most expect the second quarter to get hit the hardest, as we enter the quarter under pressure and with several persisting unknowns.
I like Facebook for the long-term, but it will have some speed bumps in the short-term. If, however, investors feel that revenue will trough in the next months — based on management commentary — then the stock may very well continue to hold up and even trade higher.
Trading FB Stock
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Of course, the risk is that management comes out far more cautious than expected or says the revenue drag will continue for the year. That will likely cause some selling pressure in FB stock as shares have already undergone a notable rally. Shares are up more than 38% from the March low.
Because the Snap report triggered such a bullish reaction, it’s possible that FB stock will continue to rally ahead of earnings. If that’s the case, the risk/reward of being long deteriorates significantly in the short-term. Meaning that, if the stock continues to rally ahead of earnings, how much will it be able to rally after earnings, provided it can rally at all?
Shares ended last week with a nice pop, rallying 2.7% on Friday. That advance took FB stock up to the 200-day moving average and the 61.8% retracement. If shares can continue higher, $200 will be the next stop, followed by the $203 to $210 gap. In this area, at $205.56, is the 78.6% retracement.
For me, the top of this range near $210 is my maximum upside target in the short-term. On the downside, it would be encouraging to see FB stock hold support at the 50% retracement near $180, followed by the 50-day moving average near $177. Below that and Facebook may see $157.50 to $160.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell is long AAPL and PINS.
