North America

Earnings Preview: Facebook Q2 2018 (FB)

By: Craig Bowles

Overview

Facebook, Inc. (FB) is slated to report 2Q 2018 earnings after the bell on Wednesday, July 25th. 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 Shareholders approved a 3-for-1 split for Facebook stock split on June 20, 2016 but that proposal was withdrawn in favor of issuing a new class of non-voting shares.

Outliers & Strategy

Key measures:

  • Non-GAAP Earnings Per Share (EPS): Analysts expect $1.72 (range $1.51 to $1.97). (Source: Yahoo! Finance) Consensus was $1.64 three months ago.
  • Revenues: Analysts expect an increase of 43.5% y/y to $13.38 bln (range $12.82 bln to $14.18 bln).
  • Monthly Active Users: Four qtr average growth of 15.3% y/y would be 2.317 bln but growth has slowed the last four quarters in a row.
  • Daily Active Users: Four qtr average growth of 15.0% y/y would be 1.518 bln but growth has slowed the last five quarters in a row.
  • Facebook’s P/E is 34.7; P/B 7.8; P/S 13.9; P/CF 22.9. Given slower expectations for revenue growth, a Price/Sales closer to 6 would be needed to become attractive for value investors.
  • Analysts view of Facebook with 42 Buy, 2 Hold, and 1 Sell ratings. (source: MarketBeat.com)
  • Insiders have bought a net 4,250,831 shares in the last three months but sold a net 1,166,513 shares in the past year. (source: NASDAQ.com)
  • Facebook shares have a 1-day average price change on earnings of 3.35%. Options are pricing in an implied move of 3.87%.

Recent News

  • 7/13: Jefferies reiterated a Buy rating on Facebook shares while suggesting Q2 revenue will be above expectations. The recently launched video offering for Instagram called IGTV will offer new monetization prospects, according to a post on CNBC.com.
  • 7/12: The SEC is investigating why Facebook didn’t disclose the Cambridge Analytica data breach. The Justice Department and the Federal Trade Commission are also probing the data leak, according to a post on Zerohedge.com.
  • 7/05: BTIG views Facebook as a must-own stock to maintain exposure to growth of mobile time spent. Instagram is shaping up to be a powerful tool for commerce, according to a post on Barron’s.com.
  • 7/03: Facebook faces broadened federal investigations over data and privacy, according to a post on CNBC.com.
  • 7/02: Facebook’s year of privacy mishaps continued with a new bug that ‘unblocked’ people, according to recode.net.
  • 6/27: Facebook has dropped their quest for fleet of solar-powered Internet drones, according to arstechnica.com.
  • 6/20: Instagram announced IGTV, an app for watching videos up to an hour long. IGTV will be rolling out globally over the next few weeks on Alphabet’s Android and Apple’s iOS operating systems, according to a post on Barron’s.com.
  • 6/11: KeyBanc believes Instagram could drive most of Facebook’s growth by the start of the next decade, according to a post on Barron’s.com.

Summary

Facebook’s stock has fully rebounded following the initial setback on regulation worries but the company is still being investigated. European regulations that limit what Facebook can do with user data began on May 25. Analyst bullishness remains impressive despite their slowing growth expectations. Instagram, Messenger, and Facebook Watch are expected to drive Facebook’s next growth spurt. Advertising revenue has been growing at an over 40% rate and increased 50% in Q1. The lack of teen interest is similar as with Twitter and that continues to be a worry. Insider selling turned to buying the last three months but showed some small selling recently with the stock at new all-time highs. The company has beaten and missed estimates by an average of 34c the past four quarters. Estimize consensus for Non-GAAP EPS of $1.81 on revenue of $13.556 bln compares to analyst consensus of $1.72 on revenue of $13.38 bln. Traders also focus on the “user” data which has shown slower growth the past year.

 

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