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- A wholly dominant business – Facebook (FB) along with Google make up a massive 85% of total US Q1 ad growth
- The monetisation of Instagram – should add close to $2billion in revenue in 2016
- A strong focus on core business – Messenger and WhatsApp have huge monthly users and are expected to launch ad products to help growth
- Outstanding growth – in Q1, the consensus expects FB to record EBITDA growth of 44% and 48% sales growth (year-on-year)
- Massive levels of operational expense (OPEX) – highlights innovation and a strong growth profile
What’s the trade?
Facebook reports its Q1 quarterly earnings on 27 April (released in post-market trade) and there is no doubt traders will give this a lot of attention.
Traders should be interested in the Q1 earnings release, not just because the fundamental story is incredible, but also because after a 31% rally between January and March, FB has had one of the best quarters in years. The risk of disappointment seems therefore high even if the earnings numbers are achievable.
As always, price action should be a trader’s guide, but with much goodwill in the price, buying weakness seems the right trade in my opinion. While hugely optimistic, $90 is the high conviction entry point (see weekly chart below), with a view to cut back on a daily close below $86. $100 may be a more realistic entry point for longs though, and as we can see from yesterday’s candle, traders have keenly supported price into $106.
Adopting a more momentum and trend based approach, buying FB on a close above the February/March double top of $116.17 would be positive too. The preference is to buy weakness into the $100 to $90 area, but a resumption of the uptrend and subsequently buying on a daily close above $116.17 is also a tactic I would employ.
Technical picture – Some signs of further weakness into earnings
Price has closed below the January uptrend and the eight-day EMA, and the upside momentum appears to have stalled – a fresh catalyst is needed. Importantly, the bulls seem to be supporting price into horizontal support around the $110 level (represented by the dotted black line). However, one cannot rule out a move into $100, and potentially even $90, which would be a strong buy zone.