Facebook (FB) Stock: Quarterly Earnings Results in Focus

May 2, 2017

6 min

The California-based Internet giant is expected to report earnings on 5 May 2017 after the closing bell. What the future hold for the world’s fifth largest company? Facebook (FB) Stock showed record high financial results in the year 2016. However, as noted by the top management, it would be hard to maintain the momentum. The consensus EPS forecast for the quarter is $0.88. The reported EPS for the same quarter last year was $0.57.

FB stocks compared to the Nasdaq Composite
FB stocks compared to the Nasdaq Composite

Trade on Facebook stock now

Performance indicators

52 Week High-Low $152.57 – $108.23
Dividend / Div Yld $0.00 / 0.00%
EV/EBITDA Annual 27.24
Consensus EPS forecast Q1/17 $0.88
Reported EPS Q1/16 $0.57
Forward PE 34.15

Trade on Facebook stock now

Reasons to buy

Mobile ads show outstanding results. Financial performance of Facebook is out of the question with ad revenues up 53% YoY and mobile ad revenues up 61% YoY in the last quarter of 2016. The average price of a single ad went up 3% compared to the same quarter last year. Ad impressions grew 49%. While the market is actively shifting towards mobile advertisement, Facebook is actively monetizing on this shift.

Share price, revenue and EPS for the last five years
Share price, revenue, and EPS for the last five years

Cashing the Instagram. One billion worth acquisition of Instagram back in 2012 seems to bear fruits. During the last one year, 500 000 advertisers have joined the platform. Over 500 million users check their Instagram feed at least once a month. Though the exact figures are undisclosed it is safe to admit Instagram is a smooth-running cash generating machine.
Messenger, WhatsApp, Oculus. Facebook knows the success of the conventional social media is not forever and actively invests in technological start-ups with tremendous growth potential. Online user activities are slowly turning from well-known social networks to messengers and “ecosystems”. And the company is eager to ride on the trend. Chatbots are the new buzz words in the world of technology. Messenger and WhatsApp — subsidiaries of Facebook — are perfectly suited to capitalize on the new technology. Virtual reality, though not a global trend yet, is very likely to generate some returns in the long run.

Company's strategic vision for the next 10 years
Company’s strategic vision for the next 10 years

Strong balance sheet. Facebook generates high and stable cash flow.  It makes FB stocks a lucrative option for potential investors and opens the gates for further investments in technological startups. Company’s cash and cash equivalents are equal to $29.4 billion. In 2016, a record high cash flow of $16.1 billion was recorded.

FB showed record high net income growth rates in the end of 2016
FB showed record high net income growth rates in the end of 2016

Reasons to sell

Facebook declines in popularity. According to the Internet gurus, the social media as we know it is slowly dying out. What seemed to be a field of endless opportunities is transforming to something different. Snapchat is becoming the most popular socializing tool among teenagers. People no longer want to dedicate hours to browsing Facebook feed. Facebook still has more users than any other social network but its future is foggy.  It is up to the company to decide should Facebook make a successful transition into the future of social media.

Social networks ranked by the growth rate of the user base in 2015–2016
Social networks ranked by the growth rate of the user base in 2015–2016

Intense competition. The company faces severe competition from social media applications and other online services. Being the pioneer of the social media industry Facebook cemented its leading position and is not likely to lose in the near future. However, such companies as Google (due to its scale and extensive product portfolio), Snapchat and Pinterest continue to bite off Facebook’s share of users and revenues. For younger generations, FB is neither different nor new. They, therefore, prefer emerging innovative services.

Share of the digital ad market, owned by FB, can decrease in the upccoming years
Share of the digital ad market, owned by FB, can decrease in the upcoming years

Banned from China. Facebook has been banned in China following the Urumqi riots, during which the platform has been used by rioters for coordination and mass agitation. Taking into account China’s 1.3 billion population, this decision by the CCP became a serious blow to the company’s growth prospects in the region. Asia is the fastest growing region of Facebook’s presence. However, due to low Internet penetration, it is not always possible to engage as many users as the Mark Zuckerberg would want to.

FB is banned in several countries
FB is banned in several countries

Personal data controversies. Facebook does not only connect people from all over the globe with each other, it saves the history of their “connection” and stores it on privately-owned host servers. This fact has drawn the attention of privacy-concerned activists and governmental structures. Should the security breach take place an Internet giant may lose a substantial portion of its market value.

Conclusion

Facebook is an interesting position right now. On the one hand, the company is going through a period of unwitnessed growth and provides the investors with outstanding financial results. On the other hand, the future of Facebook itself is foggy. As in any innovative business sphere, the success of the company as a whole will depend on its founder’s ability to predict the future and spot lucrative investing opportunities.
The overall outlook for the company in the Q1/17 is moderate to positive with a good chance of Facebook beating the estimates. Stock prices can appreciate should Facebook report higher than expected top and bottom lines.

What should you learn next? Turn the wheel to find out!

rainbow circle

Pre-Trade Checklist: Why to Use One?

share

previous post

How To Short Sell Crypto: Making Profits in a Bear Market
Short selling on the crypto market.
How To Short Sell Crypto: Making Profits in a Bear Market

next post

FX Market
Weekly FX Fundamental Overview
Weekly FX Fundamental Overview

Latest posts

How To Short Sell Crypto: Making Profits in a Bear Market

25.11.2024

Short selling on the crypto market.

Black Friday, Christmas, New Year: Tips for Trading This Holiday Season

21.11.2024

Trading on Black Friday and holidays

Rainbow Power: Moving Averages Multiplied

18.11.2024

All About the IQ Option Tournaments: Rules, Strategies and Tips

14.11.2024

IQ Option tournaments

11 Life Lessons We’ve Learned From 11 Years Of Trading

11.11.2024

11 years of IQ Option

The 2024 US Election: How Will the Markets React?

31.10.2024

US election impact on markets