Over 40 years’ heritage
185,800 clients worldwide
Over 15,000 markets

Facebook earnings preview

Facebook (FB) reports Q2 earnings on 28 July at 06:00 AEST and it should be a stock on every equity traders’ radar.

bg_facebook_1384534
Source: Bloomberg

This is a brilliant business that has a strong focus on its core operations and comes with an outstanding growth profile and a number of earnings kickers that could see further share price appreciation.

It has an incredible history of beating earnings expectations, having beaten consensus EPS (earnings-per-share) every quarter since May 2013 and having only missed revenue expectations once since July 2012. In the last three quarterly earnings reports we have seen the share price rally an average of 9.1% on the day of announcing. Obviously, past performance doesn’t predict the future, but if we think in probabilities then one suspects this trend should continue. Saying that, expectations are far more elevated this time around, and one could even make an argument that we are at peak sentiment towards this name. That should be a consideration as part of every trader’s risk management.

Chris-FB-210716

In terms of numbers to look out for, the street is expecting EPS (adjusted) of 81.3c, on revenue of $6.00 billion, which is an 11% gain quarter-on-quarter. The market is also expecting unbelievable operating margins of 85.5% showing just how effectively they are monetising their operations. Monthly Active Users (MAU) are expected to increase 3% on the quarter to 1.7 billion. These are just staggering numbers.

Of course, it’s not just Q2 earnings numbers that traders will be keying off. For Facebook to really cause a positive reaction, we will need to see strong guidance for its Q3 numbers. With this in mind, the market expects 3Q total revenue of $6.555 billion, with mobile advertising making 82% of this total. EPS is expected to rise to 86c.

Traders will also be keen to understand the value of WhatsApp, Messenger and Instagram, which many believe are undervalued by the market.

Technically, the closing break of the May high of $121.06 creates an opportunity for $130.00 with the momentum clearly to the upside. Any modest earnings disappointment, however, where the overall investment case doesn’t change would suggest buying pullbacks into the $110.00 to $108.00 area, with a stop loss on a daily close below the 200-day moving average (currently at $106.99).

The information on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG Bank S.A. accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it and as such is considered to be a marketing communication.