North America

Earnings Preview: Facebook Q2 2017 (FB)

By: Craig Bowles

Overview

Facebook, Inc. (FB) is slated to report 2Q 2017 earnings after the bell on Wednesday, July 26th. 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.

Outliers & Strategy

Key measures:

  • Non-GAAP Earnings Per Share (EPS): Analysts expect $1.12 (range $1.01 to $1.21). (Source: Yahoo! Finance) Consensus was $1.30 three months ago.
  • Revenues: Analysts expect an increase of 42.9% y/y to $9.19 bln (range $8.82 bln to $9.45 bln).
  • Mobile Monthly Active Users: This measure was not included in Q1.
  • Monthly Active Users: Four qtr average growth of 16.2% y/y would be 1.987 bln.
  • Daily Active Users: Four qtr average growth of 17.3% y/y would be 1.326 bln.
  • Facebook’s P/E is 41.8; P/B 7.6; P/S 15.9; P/CF 27.2. Given slower expectations for 2018 revenue growth, a P/S of 5.6 would be needed to become attractive for value investors.
  • Analysts view of Facebook with 42 (40 last qtr) Buy, 4 Hold, and 1 Sell ratings. (source: MarketBeat.com)
  • Insiders have sold a net 8,637,574 shares in the last three months and a net 29,632,101 shares in the past year. (source: NASDAQ.com)
  • Facebook shares have a 1-day average price change on earnings of 4.59%. Options are pricing in an implied move of 4.83%.

Recent News

  • 07/14: Facebook is reportedly planning a standalone headset for next year that doesn’t depend on a smartphone or computer, according to a post on Barron’s.com.
  • 07/14: Barclays rates Facebook Overweight with the next “major catalyst” will be monetizing its Messenger app, according to a post on TheStreet.com.
  • 06/09: Piper Jaffray thinks that Instagram and Messenger could help Facebook triple its revenue in the next five years, according to a post on Barron’s.com.
  • 06/01: RBC Capital’s survey of 2,000 people aged 13 to “senior” in the United States, showed positive implications for Facebook, according to a post on Barron’s.com.
  • 05/24: Facebook is reportedly ordering new shows from BuzzFeed and Vox. Original content gives Facebook one more place to serve ads, which is key, as the social network has been running out of places to put them on users’ feeds, 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. The daily chart looks almost exactly like last quarter with a run-up just before the earnings release. A 4-month cycle pullback didn’t really happen in April, so some sort of low would next be expected in August/September. Balance area support is around $150 and the 200-day moving average is at $137. (Chart courtesy of StockCharts.com)

Summary

Analyst bullishness remains impressive despite their slowing growth expectations. Instagram and Messenger are seen as key to Facebook’s next growth spurt. 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 more. 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 and missed estimates by an average of 11c the past four quarters. Estimize consensus for Non-GAAP EPS of $1.21 on revenue of $9.248 bln compares to analyst consensus of $1.12 on revenue of $9.19 bln. Traders also focus on the “user” data.

 

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