North America

Earnings Preview: Facebook Q4 2017 (FB)

By: Craig Bowles

Overview

Facebook, Inc. (FB) is slated to report 4Q 2017 earnings after the bell on Wednesday, January 31st. 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 Shareholders approved a 3-for-1 split for Facebook stock split on June 20, 2016 but that proposal has been withdrawn in favor of issuing a new class of non-voting shares.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 $1.95 (range $1.72 to $2.10). (Source: Yahoo! Finance) Consensus was $1.70 three months ago.
  • Revenues: Analysts expect an increase of 42.1% y/y to $12.51 bln (range $11.51 bln to $12.91 bln).
  • Monthly Active Users: Four qtr average growth of 16.9% y/y would be 2.175 bln.
  • Daily Active Users: Four qtr average growth of 17.2% y/y would be 1.441 bln.
  • Facebook’s P/E is 36.2; P/B 7.6; P/S 15.1; P/CF 25.6. Given slower expectations for 2018 revenue growth, a P/S of 6.8 would be needed to become attractive for value investors.
  • Analysts view of Facebook with 40 Buy, 3 Hold, and 2 Sell ratings. (source: MarketBeat.com)
  • Insiders have sold a net 5,555,745 shares in the last three months and a net 13,843,057 shares in the past year. (source: NASDAQ.com)
  • Facebook shares have a 1-day average price change on earnings of 4.64%. Options are pricing in an implied move of 5.98%.

Recent News

  • 1/24: Facebook’s Applied Machine Learning team developed a technology called multilingual embeddings that could significantly improve the speed at which its natural language processing tech is able to operate across foreign languages by 20 to 30 times, according to a post on TechCrunch.com.
  • 1/24: Facebook announced plans to acquire Boston digital identity authentication company, Confirm Inc., as it works to build trust in the news and advertisements appearing on its social network, according to a post on TheStreet.com.
  • 1/23: The head of Facebook’s AI research is stepping into a new role as it shakes up management, according to a post on Quartz.com.
  • 1/23: Facebook’s WhatsApp led the list of the top eight category-leading apps that had the most installs in 2017 with 954 million downloads, according to a post on Forbes.com.
  • 1/12: CEO Mark Zuckerberg said that the News Feed — one of the key areas of Facebook where advertising is placed — will start prioritizing “meaningful social interactions” versus “relevant content.” Zuckerberg said this could mean that users spend less time on the social network, according to a post on CNBC.com.
  • 1/8: FBN Securities rates Facebook as its “top pick” for 2018 citing market underestimation of ad revenue; the company’s overestimation of its expense growth as it builds out safety and security capabilities; the overreaction to the risk of regulatory interference and the revenue potential of its watch service, according to a post on Barron’s.com.
  • 12/21: Jefferies has a Buy rating on Facebook while citing that Facebook Watch may generate $12 billion in revenue by 2022 as its user base of more than 2 billion people provides an unprecedented opportunity for the company to monetize its video content, according to a post on U.S. News & World Report.
  • 11/7: CEO Zuckerberg said Facebook’s spending on security will increase and they plan to double the 10,000 staff who review content on the network in response to criticism in Washington over its failure to prevent Russian operatives from using it for election meddling, according to a post on Reuters.com.

Summary

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 is growing at an over 40% rate. The lack of teen interest is similar with Twitter and that continues to be a worry. Insider selling continues. The company has beaten and missed estimates by an average of 17c the past four quarters. Estimize consensus for Non-GAAP EPS of $1.97 on revenue of $12.632 bln compares to analyst consensus of $1.95 on revenue of $12.51 bln. Traders also focus on the “user” data which grew slower than average last quarter and weighed on shares.

 

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