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FACEBOOK EARNINGS PREVIEW: Will Ads Revenue Lift the Share to its All-Time High?


FACEBOOK EARNINGS PREVIEW: Will Ads Revenue Lift the Share to its All-Time High?

The Facebook stock price increased by almost 55 percent this year and erased all of its 2018 losses; despite the growth of Facebook decelerated as legal costs and higher investments pressured its earnings, but the Instagram expansion largely offset those worries. On July 15, the price closed at $204.87, with a 52-week range between $123.02 to $218.62. The market capitalization for the stock stands at 582.059B with an average traded volume at 17,187,543 shares. As we can see in the table below the FB stock has outperformed the S&P 500.

Facebook Metrics
There are now around 2.7 billion people using Facebook, WhatsApp, Instagram, or Messenger every month, and more than 2.1 billion people are using at least one app every day. Facebook’s daily average user (DAU) reached 1.56 billion, up 8% compared to last year, led by growth in Indonesia, India, and the Philippines. These countries represent approximately 66% of the 2.38 billion monthly active users in March. Monthly Average Users grew 179M or 8% compared to last year. The company estimates that on average, over 2.1 billion people used at least one of its applications on a daily basis in March and around 2.7 billion people were active on a monthly basis. The numbers show that the cross-selling between apps increased quarter after quarter.

Facebook Financials
The Q1 2019 total revenue for Facebook was $15.1 billion, up 26 percent or 30 percent on a constant currency basis, as the company faces an increasing FX risk. Q1 total advertising revenue was $14.9 billion, an increase of 26%. In terms of Local-regional advertising revenue growth, the USA and Canada were strongest at 30%, followed by the Asia-Pacific at 28% while the Rest of the World came at 23%. Europe grew at a slower pace, about 21% and was impacted in part by forex headwinds, and also from the EU GDPR rule. On the cost side, Facebook total expenses were $11.8 billion, up 80%, because of a $3 billion accrual taken in connection with the inquiry of the Federal Trade Commission into Facebook’s platform and user data practices. This matter finally cost the company $5 billion and is a number that we will not see in this quarter’s results.

The net income came in at $2.4 billion, or $0.85/per share. FB agreed to pay a fine of $5 billion to FTC (one time) that will reduce the total earnings by 5B and EPS by 1.04 dollars. Capital expenditures were $4 billion, driven by investments in data centers, servers, office facilities, and network infrastructure. The company generated $5.3 billion in free cash flow and ended Q1 2019 with $45.2 billion in cash and investments. The mobile ad revenue grew 30% year over year to $13.9 billion, accounting for almost 93% of FB total ad revenue. Facebook and Instagram feed ads make up the bulk of FB income today. I believe that to continue, the Stories segment is an increasingly important and promising growth opportunity.

Facebook adds New Products…
The company recently announced “Checkout” on Insta, so when members find a product they love in a post or story, they can buy it without leaving the app. The company started with 23 brands in the US including Adidas and MAC. Checkout will revolutionize e-commerce because members don’t have to transfer to an e-shop or to the company website, they can buy instantly saving a lot of time.

..and enters new Markets
Facebook is entering the cryptocurrency world with Libra. Facebook doesn’t own Libra or run the crypto consortium, which is led by a nonprofit organization in Switzerland. FB is developing a virtual wallet called Calibra, which will be integrated into Messenger and WhatsApp. Libra’s value is connected to existing fiat currencies to reduce volatility, and that is a big advantage versus bitcoin and other cryptocurrencies.

Risk is Here to Stay
The threats for Facebook business is not over yet. The company still faces an SEC probe regarding Cambridge Analytica, a criminal investigation into its data deals in New York, and a lawsuit from the Housing and Urban Development Department over housing discrimination in targeted ads. On the other hand, Facebook still has a lot of room for growth in the coming years as the monetization of its apps move faster. The company has barely taken its first steps in terms of monetizing Instagram, WhatsApp, and Facebook Messenger.

The Technical View
FB’s stock price extended its gains over the previous trading sessions and climbed above the $200-mark. At the time of writing, it continues to head higher in support of a positive short-term picture. The bias in the short-term looks bullish asindicated by the MACD which is strengthening its positive momentum. FB price holds above all the major daily moving averages and an attempt to all-time high can’t be ruled from the current level. A sign of concern is that the RSI has reached 69.33 and is soon to reach overbought levels which might trigger some profit-taking.

On the price trading lower, the stock might find support near the 194.33 handle which is the 20-day moving average.

The next support levels are coming from the 186.46 barrier the 50-day moving average and the 179.91 the 100-day
moving average.

On the upside, as the bulls are in control, an advance could stop at $110 before moving north to $218, the all-time high
for the stock.

Concluding, the market bias is bullish however, the stock is close to all-time high and needs a strong catalyst which might
be the upcoming earnings report to move to unchartered territory.

Facebook will report earnings on July 24. Market consensus estimates revenue of $16.5B with $1.85 EPS. For the full-year
forecasts are for $7.69 EPS.

Consensus EPS Estimates

Written by Nikolas Papas, Market Strategist, InvestingCube.com and ATFX

Nikolas Papas

Nikolas Papas has been in the finance industry for over fifteen years in roles spanning across. Europe and USA and has acquired in-depth knowledge and experience within many aspects of the financial markets. Nikolas has worked for some of Europe's leading brokers, as an equity Analyses, and a trader managing accounts for both private and corporate investors. He enjoys both the fundamental and technical aspects of trading and focuses on stock markets and all FX majors. Currently, Nikolas provides analysis and comments on online financial publications. He studied and completed a degree in Economics (BSc), and Finance (MSc).

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