What to Expect from Facebook Inc
So far this year, the biggest rise in Facebook Inc (NASDAQ:FB) stock was due to its earnings report. In just three trading sessions after the company reported earnings on January 27, Facebook stock surged an impressive 21.9%!
What makes it stands out is that the rise in Facebook’s stock price came at a time when many tech companies were deep in the red. Things have gotten better in the stock market these days, and the social media giant is going to report earnings again. Will there be another surge in FB stock?
Well, let’s take a look at what analysts are expecting first.
Stats on Facebook Inc
If you think Facebook’s valuations are too high, consider some of the following stats…
Sure, trading at 87 times its earnings, Facebook stock is not cheap. But the market is clearly expecting huge growth down the road.
For the current quarter, analysts expect Facebook to grow its bottom line by 47.6% year-over-year to $0.62 in earnings per share (EPS). Revenue is also expected to improve, by an even higher 48.3% to $5.25 billion. (Source: “Analyst Estimates,” Yahoo! Finance, last accessed April 20, 2016.)
Growing both top and bottom lines by nearly 50% is no easy task. But in the past, Facebook has always faced high expectations from Wall Street and still managed to deliver better-than-expected results. In all four quarters of 2015, the company beat analysts’ earnings estimates every single time.
As is the case with previous earnings reports, Facebook stock investors will pay close attention to its user growth. Despite being the most dominant player in the social media business, Facebook still managed to grow its already massive userbase. By December 2015, Facebook had 1.59 billion monthly active users (MAUs), a 14% increase year-over-year. (Source: “Facebook Reports Fourth Quarter and Full Year 2015 Results,” Facebook Inc, January 27, 2016.)
Advertising is expected to continue to be the main driver of Facebook’s revenue growth. Last time it reported, Facebook’s advertising revenue increased 57% year-over-year. However, it was offset by a 21% decline in revenue from payments and other fees.
The company’s photo-sharing app, “Instagram,” could be another catalyst this quarter. The app has more than 400 million MAUs. It didn’t roll out advertising until last September, but by February, Instagram had reached 200,000 advertisers. (Source: “200,000 Advertisers on Instagram,” Instagram Blog, February 24, 2016.)
Earlier this week, Credit Suisse analyst Stephen Ju reiterated his “Buy” rating on Facebook stock and increased his price target from $140.00 to $142.00. Based on where the stock is trading right now, that would represent a more than 26% potential upside. (Source: “Why Facebook is a Three-Headed Monster,” Barron’s, April 19, 2016.)
In particular, Ju’s team considers Instagram and video ads as near-term catalysts. In the long term, the analyst sees “two more Facebooks lurking inside Facebook.” (Source: Ibid.)
The analyst is referring to Facebook’s standalone messaging apps, “Messenger” and “WhatsApp.” Messenger has more than 900 million users, while WhatsApp has one billion users. Ju believes that the chat feed in Messenger will eventually become a newsfeed and that a similar feature will be available on WhatsApp. Offering newsfeeds in two of the world’s most popular messaging apps would bring a lot more native advertising opportunities to Facebook’s portfolio.
The Bottom Line on FB Stock
Facebook is scheduled to report its Q1 2016 earnings on Wednesday, April 27 after the closing bell. If the company manages to deliver another massive earnings beat, we might see another spike in FB stock.