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Facebook’s stock has soared by nearly 23% since the company posted its first-quarter numbers in April, and even though the revenue growth has cooled, dealers are putting their weight behind the future payoff from the extensive research and development that has gone on this year.
In the first three-months of the year the company revealed a 42% jump in revenue, but this was the slowest growth in sales in two years. Facebook has capitalised on the income generating from its own website, and the decrease in the rate of sales growth is a sign that it would be facing diminishing returns. To broaden its money-making ability the company has ramped up its spending on R&D so it can roll out the same revenue generating across its other services like WhatsApp, Oculus Rift and Instagram.
When Facebook first floated there were many concerns about how long its popularity would last, and more importantly how the company would monetise its membership. The social media site is still extremely popular, and its usership exceeds the population of China. Some investors were concerned that expenses jumped by 83% in the first-quarter, and R&D costs saw an even bigger rise of 133%. The ability to earn revenue from its other services will be the focus for traders.
When Facebook reveals its second-quarter numbers, the market is anticipating revenue of $3.9 billion and EPS of 47 cents. The company’s first-quarter numbers were broadly in line with dealer’s estimates, and the revenue was $3.54 billion and the EPS came in at 42 cents, while the market was anticipating $3.56 billion and 40 cents respectively. The social media giant announces its full-year numbers in January 2016, and the market is expecting revenue of $17 billion, and EPS of $2. These forecasts represent a 36% increase in revenue and 13% rise in EPS.
Equity analysts are very bullish on Facebook, and out of the 53 ratings, 46 are buys, six are holds, and one is a sell. The average target price is $98.56, and that is 3.7% above the current price. Investment banks hold a moderately bullish outlook for Twitter, and out of the 40 recommendations, 13 are buys, 25 are holds, and two are sells. The average target price is $46.38, which is 30% above the current price.
The number of short positions on Facebook is at its highest level in three months, but the short interest has still dropped since the firm revealed its first-quarter numbers.
The stock has been in an upward trend since July 2013, and the $100 level is in sight. Any moves lower will provide a buying opportunity, and support will be found at $98 and $95.