What next for Facebook as earnings loom?

Facebook’s CEO survived his appearance before lawmakers in the US. As earnings loom on the horizon, what is next for the social media giant and its stock?

Facebook
Source: Bloomberg

Mark Zuckerberg succeeded in avoiding any pitfalls during his testimony to Congress last week, helped along by some fairly ineffective questioning from US lawmakers. The stock managed to rally during his appearances, and continued to rise, helping the tech universe as a whole claw back some lost ground.

Now that this is out of the way, what is next for Facebook? Earnings will be released on 25 April, providing a chance for the company to show contrition for the recent failings and demonstrate how it is improving privacy settings, while also setting out the future development of the firm. Current expectations are for the firm to post a 24.3% rise in headline earnings for the quarter, at $1.69 per share, while revenue is forecast to rise an impressive 42.2%, to $11.42 billion. The firm has beaten forecasts for these metrics for eight consecutive quarters, so while the stakes are high, the firm has a record of consistency on this. The average one day move on earnings day is 3.1%, while current options pricing suggests a 5.6% move. Given the focus on new security provision and the risk of regulation (which is admittedly lower than it seemed a few weeks ago), this could well be a volatile day for Facebook stock.

Expenses will probably be expected to rise in coming quarters, given the increased focus on security and the research and development that goes with that. However, the firm remains the platform of choice for advertisers, and while it will have to be (and will choose to be) more selective with who advertises on the platform, especially given upcoming mid-term elections in the US, the money-making machine of the Facebook platform, and its counterpart on Instagram, will continue to provide fuel for further growth.

At 22.5 times current earnings forecasts, and 18.6 times for the following year, Facebook does not fall into the cheap category, but neither does it look overly-expensive, especially when compared to the likes of Snap and Twitter.

Facebook endured a stomach-churning fall from its record high in January, but it bounced from the rising 100-week moving average, nearing that indicator for the first time since August 2015. Those who bought the bounce off the 200-day simple moving average (SMA) back in February were confounded, as it found fresh lows at the end of March. At present it is fighting to keep moving higher, and a move back above $170 would calm nerves, but bulls will only rest easy if it can move back above the downtrend line from the January highs, suggesting a recovery back above $179. The March dip buyers have done well, but the task is still incomplete. However, the recovery has been strong and shows signs of continuing. It is too soon to abandon Facebook stock. 

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