Stock Market News – Facebook eyed ahead of quarterly earnings report; rising yields a consideration for investors
April 25, 2018 3:26 pm
Social networking giant Facebook is scheduled to release its earnings report for the first quarter of the year after Wednesday’s US market close. The consensus recommendation for the company is “buy”, in line with the average consensus recommendation for the Online Services peer group. This is the first report by the firm after the Cambridge Analytica scandal, something which might bring it under more scrutiny by the investor community than would otherwise have been the case.
Facebook’s Q1 2018 earnings per share (EPS) are anticipated to come in at $1.37 according to analysts submitting their projections to Thomson Reuters’ estimate system (the Institutional Brokers’ Estimate System – I/B/E/S). Current expectations reflect an upward revision from $1.36 from four weeks ago. Should the corporation’s bottom line match estimates, this would represent an increase of 31.7% compared to the same quarter from last year when the firm made $1.04 per share. Analysts’ EPS forecasts range from $1.07 to $1.63. The California-based company delivered an earnings beat in two of the four preceding quarters, while disappointing in the remaining two.
A positive earnings surprise could see the corporation’s stock price coming under buying interest, with resistance to advances potentially being met around the 38.2% Fibonacci level of the February 1 to March 26 downleg at $166.74. An upside break from the area around this point would turn the attention to the current level of the 50-day moving average at $171.02. Should financial results fall short of forecasts on the other hand, the share price might come under selling pressure. The 23.6% Fibonacci mark at $159.98 was violated on Tuesday, but the area around it could still provide some support. A more decisive move to the downside would start to increasingly shift the focus to the 10-month low of $149.02 hit in late March.
Using the RSI to gauge Facebook stock’s short-term bias, the indicator turned lower yesterday after hovering around the 50 neutral-perceived level in previous days. This might constitute an early sign that momentum is turning negative; today’s report has the capacity to steer momentum in either direction.
Beyond the social media behemoth’s profitability, investors will also be paying close attention to user engagement (and monetization), with daily and monthly active users, as well as the ratio of the two, being the metrics used to gauge that. In the previous quarter, Facebook reported a drop in daily active users in North America for the first time in its history. Additional declines might lead market participants to increasingly challenge the firm’s outlook. The recent data breach incident involving Cambridge Analytica is a factor that might act as a catalyst for users moving away from the platform. It is interesting though, that users turning their back on Facebook (referring to the platform) seem to be finding refuge in Instagram, which too is owned by Facebook (the company).
Other areas that will be looked upon by investors are the corporation’s capital expenditures, which have been on the rise in previous quarters, its revenue growth and its plans to comply with new European laws, namely the General Data Protection Regulation (GDPR).
Remaining within regulatory considerations, there is definitely a rising regulatory risk within the tech space in the US in the aftermath of data breach incidents. If such risks were to materialize, they could hurt Facebook and other companies in the sector by virtue of higher costs of compliance. Another theme that might bring Facebook’s share price under pressure is panic selling on the back of talk of “bubbly” tech stocks valuations picking up steam. In this respect, the corporation’s forward P/E ratio (price over forecasted earnings) stands at 20.49, which is below the peer group’s 23.81.
Facebook is an S&P 500 and Nasdaq 100 component stock. Year-to-date and prior to Wednesday’s US market open, the firm’s stock price is trading lower by 9.5%, underperforming both benchmarks; the S&P is down by 1.5% and the Nasdaq 100 up by 1.8% in 2018. Wall Street analysts’ mean and median price target on Facebook are at $216.06 and $218.60 correspondingly.
Some other big names reporting quarterly results after the closing bell are AT&T, eBay and Ford.
Lastly, rising US Treasury yields cannot be taken out of the equation. The return on the 10-year Treasury Note touched 3.03% earlier on Wednesday, its highest since early 2014. This makes it more compelling for investors to increase their portfolio allocation to bonds (the implication being a reduced equity allocation). Moreover, from a discounted cash flow perspective, higher interest rates translate into lower equity valuations; of course, accelerating earnings growth could well more than offset such effects acting to the detriment of stocks.
Social networking giant Facebook is scheduled to release its earnings report for the first quarter of the year after Wednesday’s US market close. The consensus recommendation for the company is “buy”, in line with the average consensus recommendation for the Online Services peer group. This is the first report by the firm after the Cambridge Analytica scandal, something which might bring it under more scrutiny by the investor community than would otherwise have been the case.
Facebook’s Q1 2018 earnings per share (EPS) are anticipated to come in at $1.37 according to analysts submitting their projections to Thomson Reuters’ estimate system (the Institutional Brokers’ Estimate System – I/B/E/S). Current expectations reflect an upward revision from $1.36 from four weeks ago. Should the corporation’s bottom line match estimates, this would represent an increase of 31.7% compared to the same quarter from last year when the firm made $1.04 per share. Analysts’ EPS forecasts range from $1.07 to $1.63. The California-based company delivered an earnings beat in two of the four preceding quarters, while disappointing in the remaining two.
A positive earnings surprise could see the corporation’s stock price coming under buying interest, with resistance to advances potentially being met around the 38.2% Fibonacci level of the February 1 to March 26 downleg at $166.74. An upside break from the area around this point would turn the attention to the current level of the 50-day moving average at $171.02. Should financial results fall short of forecasts on the other hand, the share price might come under selling pressure. The 23.6% Fibonacci mark at $159.98 was violated on Tuesday, but the area around it could still provide some support. A more decisive move to the downside would start to increasingly shift the focus to the 10-month low of $149.02 hit in late March.
Using the RSI to gauge Facebook stock’s short-term bias, the indicator turned lower yesterday after hovering around the 50 neutral-perceived level in previous days. This might constitute an early sign that momentum is turning negative; today’s report has the capacity to steer momentum in either direction.
Beyond the social media behemoth’s profitability, investors will also be paying close attention to user engagement (and monetization), with daily and monthly active users, as well as the ratio of the two, being the metrics used to gauge that. In the previous quarter, Facebook reported a drop in daily active users in North America for the first time in its history. Additional declines might lead market participants to increasingly challenge the firm’s outlook. The recent data breach incident involving Cambridge Analytica is a factor that might act as a catalyst for users moving away from the platform. It is interesting though, that users turning their back on Facebook (referring to the platform) seem to be finding refuge in Instagram, which too is owned by Facebook (the company).
Other areas that will be looked upon by investors are the corporation’s capital expenditures, which have been on the rise in previous quarters, its revenue growth and its plans to comply with new European laws, namely the General Data Protection Regulation (GDPR).
Remaining within regulatory considerations, there is definitely a rising regulatory risk within the tech space in the US in the aftermath of data breach incidents. If such risks were to materialize, they could hurt Facebook and other companies in the sector by virtue of higher costs of compliance. Another theme that might bring Facebook’s share price under pressure is panic selling on the back of talk of “bubbly” tech stocks valuations picking up steam. In this respect, the corporation’s forward P/E ratio (price over forecasted earnings) stands at 20.49, which is below the peer group’s 23.81.
Facebook is an S&P 500 and Nasdaq 100 component stock. Year-to-date and prior to Wednesday’s US market open, the firm’s stock price is trading lower by 9.5%, underperforming both benchmarks; the S&P is down by 1.5% and the Nasdaq 100 up by 1.8% in 2018. Wall Street analysts’ mean and median price target on Facebook are at $216.06 and $218.60 correspondingly.
Some other big names reporting quarterly results after the closing bell are AT&T, eBay and Ford.
Lastly, rising US Treasury yields cannot be taken out of the equation. The return on the 10-year Treasury Note touched 3.03% earlier on Wednesday, its highest since early 2014. This makes it more compelling for investors to increase their portfolio allocation to bonds (the implication being a reduced equity allocation). Moreover, from a discounted cash flow perspective, higher interest rates translate into lower equity valuations; of course, accelerating earnings growth could well more than offset such effects acting to the detriment of stocks.
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