North America

Earnings Preview: Facebook Q4 2016 (FB)

By: Craig Bowles

Overview

Facebook, Inc. (FB) is slated to report 4Q 2016 earnings after the bell on Wednesday, February 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 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 $1.31 (range $1.13 to $1.40). (Source: Yahoo! Finance) Consensus was $1.25 three months ago.
  • Revenues: Analysts expect an increase of 45.4% y/y to $8.49 bln (range $8.16 bln to $8.71 bln).
  • Mobile Monthly Active Users: Four qtr average growth of 20.3% y/y would be 1.732 bln.
  • Monthly Active Users: Four qtr average growth of 14.8% y/y would be 1.825 bln.
  • Daily Active Users: Four qtr average growth of 16.7% y/y would be 1.214 bln.
  • Facebook’s P/E is 49.9; P/B 6.9; P/S 15.2; P/CF 29.7. Given slower expectations for 2017 revenue growth, a P/S of 7 would be needed to become attractive for value investors.
  • Analysts view of Facebook with 46 Buy, 4 Hold, and 1 Sell ratings. (source:  MarketBeat.com)
  • Insiders have sold a net 2,925,749 shares in the last three months and a net 45,844,370 shares in the past year. (source: NASDAQ.com)
  • Facebook shares have a 1-day average price change on earnings of 5.14%. Options are pricing in an implied move of 5.65%.

Recent News

  • 01/19: When Will Facebook Split Its Stock Again?, according to a post on Fool.com.
  • 01/18: Facebook CEO Zuckerberg sees virtual reality (VR) taking another 5 or 10 more years of development, according to a post on Barron’s.com.
  • 01/13: Raymond James upgraded Facebook to Strong Buy from Outperform arguing that investors’ concerns about “ad load” are overblown following checks. Remains comfortable with consensus 4Q ad revenue estimates of $8.2B/$8.3B or 45%/47% y/y growth, according to a post on Barron’s.com.
  • 01/12: Cantor Fitzgerald considers Facebook among their “best ideas” as trends in the Internet business are accelerating, according to a post on Barron’s.com.
  • 01/12: Facebook is using its photo-sharing app Instagram to mimic a popular Snapchat service and grab more ad dollars in the process, according to a post on Barron’s.com.
  • 12/30 Facebook focus for 2017 includes expectations for a meaningful slowdown in ad revenue growth; being able to monetize its newer assets; and, winning back trust, according to a post by Barron’s.com.
  • 12/19: SunTrust Robinson Humphrey reiterated a Buy rating on Facebook following the company’s disclosure that its Instagram service hit 600 million monthly users. The service could beat Suntrust’s 2017 revenue estimate of $3.5 billion, according to a post by Barron’s.com.

Technical Review

Facebook stock seems to make a new all-time high nearly every quarter and the stock is nearing October’s $133.50 after an obligatory pullback to the 200-day moving average. A pullback every four months or so seems to be the norm for the stock in this bull market. (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 dropped off recently making you wonder if the promised stock split may finally come to fruition. The split was initially announced at the end of April 2016, so February will be 10 months. The company has beaten estimates by an average of 13c the past four quarters. Estimize consensus for Non-GAAP EPS of $1.36 on revenue of $8.488 bln compares to analyst consensus of $1.31 on revenue of $8.49 bln. Traders also focus on the “user” data.

 

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