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Facebook stock price nears trendline resistance ahead of earnings

Having seen its stock price wilt since August and its record high, can Facebook restore a more bullish outlook with Q4 earnings, despite antitrust fears?

Facebook Source: Bloomberg

When is Facebook’s next earnings release?

Facebook reports its fourth quarter (Q4) earnings on 27 January. Earnings will be published after the market closes.

Facebook earnings – what does the Street expect?

Facebook is expected to have reported headline earnings per share of $3.39, up 16.3% year-on-year (YoY), while revenue is forecast to rise 25.2% YoY to $26.39 billion. The company has beaten forecasts on both metrics in all eight of its previous eight earnings reports.

Like many tech stocks, Facebook reaped the benefits of the global lockdown and the shift to online work and shopping for millions, allowing it to reach people via its platform and the advertising therein, and thus increasing its attractiveness for companies looking to reach new audiences. There are some concerns for the stock, notably the potential for antitrust legislation under the new administration, and a drop in average time per user spent on the site following the recent clampdown on accounts in the wake of the Capitol riots in the US.

But overall, Facebook continues to be a powerhouse stock. Free cashflow has gone from $7.7 billion in 2015 to $21.2 billion in 2019, and shows no sign of slowing down. It is this that has driven the stock rally, investors sticking with a proven winner that appears to have the ability to generate cash at will.

How to trade Facebook earnings

Facebook stock dropped by 0.62% on the day of its last earnings release in October 2020, although the stock had been much higher during the session and had then fallen. The average move on results day is 5.81%, but current options pricing points towards a move of 5.66%.

A total of 56 analysts cover Facebook stock, with 47 ‘buy’ recommendations, six ‘holds’ and just three ‘sells’. The median analyst target price is $325.39, a premium of 18.5% to the 22 January close of $274.50.

Facebook stock price – technical analysis

Facebook stock has struggled since its record high at the end of August, underperforming benchmark indices. Trendline resistance from that August high has capped upside, with rallies in November and December turning lower from trendline resistance. It also broke below trendline support in late December, beginning its fall to the 200-day SMA (simple moving average) at $251.41.

The pre-earnings rebound from the 200-day SMA has carried the price back towards trendline resistance, and will be watched closely. Signs of a failure to break above resistance and a key reversal will bring out the sellers. Meanwhile, a break higher brings a move towards $292.00 into view, the area that saw the November and December bounces falter.

Facebook chart Source: ProRealTime
Facebook chart Source: ProRealTime

Facebook – still a great momentum play?

An investor’s view of Facebook depends on whether they think that antitrust moves and a general drop-off in popularity in the US will come home to roost, or whether the mountains of cash it generates provide a rationale for investing.

The stock has gone through a tough few months (at least in terms of previous performance), and it seems like Q4 earnings could be make or break moment, at least in the short term.

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