Facebook expects strong pre-tax profits

Improving sales figures should help drive up profitability as returns from the companies social networking platforms continue to grow.

Facebook logo painted on a wall
Source: Bloomberg

On Wednesday 28 January, after the markets have closed, Facebook is due to post its fourth quarter figures. The social networking company’s adjusted earnings per share are expected to improve from $0.43 up to $0.482, while sales are expected to get stronger, from $3.203 billion up to $3.776 billion. On the back of these figures the company’s pre-tax profits are also due to improve, increasing from $1.336 billion up to $2.138 billion.

Of the 57 companies that have a rating for Facebook, 48 have a buy recommendation, eight a hold recommendation and only one has a sell note. The average price target for the next 12 months is $89.07 as at the current price of $77.83 there is still a premium of 12.6%.

Facebook continues to forge a path for other social networking companies to follow. It has now made the transition into a company that has been able to monetise its users, while at the same time managing to avoid alienating them.

The latest step in this process has been further diversification away from what has historically been its formula for success.  Facebook has been testing a new business version of its website and app with a few handpicked corporations. The new version removes all of the advertising, personal photos and humorous joke videos to bring it in line with corporate networking competitors such as Salesforce.

Considering the reputation that Facebook has gained from its indiscretions when it comes to user’s privacy, it will be interesting to see how many companies are willing to forgive and forget. However, as the corporate social networking arena is worth almost $2.5 billion, Facebook will be willing to work hard to tailor its product for this audience.

Considering how positive the institutional analysts are for the company, and in view of the premium still available between current levels and the average price target, a continuation of the bullish trend looks likely. Only a break below the $72.11 level or the 200-day moving average would see a dramatic re-think of this.  

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