North America

Earnings Preview: Facebook Q3 2017 (FB)

By: Craig Bowles

Overview

Facebook, Inc. (FB) is slated to report 3Q 2017 earnings after the bell on Wednesday, November 1st. 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 Shareholders approved a 3-for-1 split for Facebook stock split on June 20, 2016 but that proposal has been withdrawn in favor of issuing a new class of non-voting shares.

Outliers & Strategy

Key measures:

  • Non-GAAP Earnings Per Share (EPS): Analysts expect $1.28 (range $1.15 to $1.44). (Source: Yahoo! Finance) Consensus was $1.16 three months ago.
  • Revenues: Analysts expect an increase of 40.3% y/y to $9.84 bln (range $9.52 bln to $10.18 bln).
  • Monthly Active Users: Four qtr average growth of 16.9% y/y would be 2.092 bln.
  • Daily Active Users: Four qtr average growth of 17.3% y/y would be 1.385 bln.
  • Facebook’s P/E is 39.1; P/B 7.6; P/S 15.5; P/CF 26.5. Given slower expectations for 2018 revenue growth, a P/S of 6.0 would be needed to become attractive for value investors.
  • Analysts view of Facebook with 42 Buy, 3 Hold, and 2 (1 last qtr) Sell ratings. (source: MarketBeat.com)
  • Insiders have sold a net 5,335,308 shares in the last three months and a net 23,087,254 shares in the past year. (source: NASDAQ.com)
  • Facebook shares have a 1-day average price change on earnings of 4.96%. Options are pricing in an implied move of 5.18%.

Recent News

  • 10/20: Facebook Messenger users can now send money to each other with PayPal, according to a post on CNBC.com.
  • 10/19: Suntrust Robinson Humphrey reiterated a Buy on Facebook. “1) ad demand across FB and Instagram has material headroom, as video-viewing shifts online from TV, 2) user growth/engagement remain robust, and 3) Messenger should start showing monetization potential in 2018,” according to a post on Barron’s.com.
  • 10/19: Piper Jaffray polled 6,100 American teens in 44 states. Snapchat is by far the most popular with Instagram second. Facebook and Twitter continue to lose popularity, according to a post on marketrealist.com.
  • 10/19: Facebook will launch a news subscription feature and has signed up 10 news publishers including the Washington Post and The Economist to take part in a trial, according to a post on Reuters.com.
  • 10/17: Regina Dugan, head of Facebook’s secretive Building 8 research lab is leaving the company after just 18 months, according to a post on Quartz.com.
  • 10/13: Facebook partnered with delivery services and restaurants to offer users the ability to order meals directly from the Facebook app without having to open each of the individual partner applications, according to a post on CNBC.com.
  • 10/12: William Blair reiterated an Outperform on Facebook citing that the buy side is expecting 44% advertising growth for the quarter, 160 basis points above the 42.4% consensus, according to a post on Barron’s.com.
  • 09/23: Facebook withdrew a proposal that would have split the company’s stock and issued a new class of non-voting shares to the general public, according to a post by Recode.net.
  • 09/19: Mizuho Securities reiterated a Buy rating on Facebook. The company could find an opportunity to bring the social network, at least in an abridged form, to China starting this November, as Chinese president Xi Jinping starts his second five-year term, according to a post by Barron’s.com.
  • 08/31: Facebook’s video platform is no YouTube killer but the company’s scale and resources should make its new Watch video platform pay off, according to a post by TheStreet.com.

Summary

Analyst bullishness remains impressive despite their slowing growth expectations. Instagram and Messenger are seen as key to Facebook’s next growth spurt. Advertising revenue is growing at an over 40% rate. The lack of teen interest is similar with Twitter and that continues. Insider selling slowed the past three months. Facebook withdrew a proposal that would have split the company’s stock and issued a new class of non-voting shares. The company has beaten and missed estimates by an average of 12c the past four quarters. Estimize consensus for Non-GAAP EPS of $1.34 on revenue of $9.932 bln compares to analyst consensus of $1.28 on revenue of $9.84 bln. Traders also focus on the “user” data.

 

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