North America

Earnings Preview: Facebook Q1 2017 (FB)

By: Craig Bowles

Overview

Facebook, Inc. (FB) is slated to report 1Q 2017 earnings after the bell on Wednesday, May 3rd. The actual results are expected to come through at approximately 4:05 p.m. ET with a conference call to follow at 5:00 p.m. available at Facebook Investor Relations.  The social networking company is a component of the S&P 500 and NASDAQ 100. Shareholders approved a 3-for-1 split for Facebook stock split on June 20, 2016 although a date has yet to be set probably due to a lawsuit that opposes the split. Google took 10 months to settle a similar stock split lawsuit in 2012/13.

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Outliers & Strategy

Key measures:

  • Non-GAAP Earnings Per Share (EPS): Analysts expect $1.12 (range $0.90 to $1.33). (Source: Yahoo! Finance) Consensus was $1.07 three months ago.
  • Revenues: Analysts expect an increase of 45.4% y/y to $7.83 bln (range $7.49 bln to $8.29 bln).
  • Mobile Monthly Active Users: Four qtr average growth of 20.2% y/y would be 1.815 bln.
  • Monthly Active Users: Four qtr average growth of 15.5% y/y would be 1.905 bln.
  • Daily Active Users: Four qtr average growth of 17.1% y/y would be 1.276 bln.
  • Facebook’s P/E is 42.3; P/B 7.2; P/S 15.6; P/CF 26.8. Given slower expectations for 2018 revenue growth, a P/S of 5.5 would be needed to become attractive for value investors.
  • Analysts view of Facebook with 40 Buy, 6 Hold, and 1 Sell ratings. (source: MarketBeat.com)
  • Insiders have sold a net 5,836,619 shares in the last three months and a net 38,726,661 shares in the past year. (source: NASDAQ.com)
  • Facebook shares have a 1-day average price change on earnings of 5.08%. Options are pricing in an implied move of 4.38%.

Recent News

  • 04/24: Moffett Nathanson reiterated a Buy rating on Facebook after the F8 annual developer conference but thinks incremental engagement and monetization from AR are likely small and perceives a pattern of overhyping/overpromising and under delivering, according to a post on Barron’s.com.
  • 04/20: Magellan Global Fund’s Hamish Douglass highlights a bright future for Facebook based on user engagement and the ability to exploit its network to grow its advertising business, according to a post on Barron’s.com.
  • 04/19: Analysts were generally positive on Facebook’s F8 annual developer conference which discussed a variety of products and initiatives for artificial intelligence, augmented reality, and related areas, according to a post on Barron’s.com.
  • 04/13: Piper Jaffray reiterated an Overweight rating on Facebook after surveying 860 users of its Instagram photo sharing service, and concluding that the company is successfully keeping social competition at bay, especially Snap’s (SNAP) Snapchat, according to a post on Barron’s.com.
  • 03/21 BTIG Research upgraded Facebook to Buy from Neutral. “Legacy media companies” have made no progressing with mobile video, while Facebook’s early missteps in video have been followed up by improvements, according to a post by Barron’s.com.

Technical Review

Facebook stock seems to make a new all-time high nearly every quarter with an obligatory pullback to the 200-day moving average every 4 or 8 months. A 4-month cycle pullback didn’t really happen in April, so some sort of low would next be expected in August/September. (Chart courtesy of StockCharts.com)

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Summary

Analyst bullishness remains impressive despite their slowing growth expectations. Digital advertising is expected to become  bigger than television in 2017 with Facebook and Alphabet controlling more than half of the market. Insider selling picked up a bit. The promised stock split hasn’t happened yet. The split was initially announced at the end of April 2016, so has passed Google’s 10 month timetable. The company has beaten estimates by an average of 13c the past four quarters. Estimize consensus for Non-GAAP EPS of $1.16 on revenue of $7.937 bln compares to analyst consensus of $1.12 on revenue of $7.83 bln. Traders also focus on the “user” data.

 

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