Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 79% of retail investor accounts lose money when spread betting and/or trading CFDs with this provider. You should consider whether you understand how spread bets and CFDs work and whether you can afford to take the high risk of losing your money

79% of retail investor accounts lose money when spread betting and/or trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.

Tricks of the trade

How to Day Trade Stocks & Indices

Learn how to:

  • Place your first trade
  • Identify 9 chart patterns
  • Pro strategies step-by-step

You'll also receive our newsletter and other Opto emails in accordance with our privacy policy.

Earnings

Facebook share price: what to expect in Q4 earnings results?

Facebook’s share price could soar post Q4 earnings results, with some analysts suggesting that the stock is undervalued.

Facebook [FB] seems impervious to any negativity right now. Over the past 12 months, Facebook's share price is up 48%, outpacing the S&P 500's 25% gain. Anti-trust lawsuits, the Cambridge Analytica scandal, and criticism over its role in national elections, have failed to stop its growth. But will Facebook, the world's biggest social media site - or advertiser, depending on your point of view - deliver another set of bumper earnings results in Q4?

 

 

 

 

When is Facebook reporting Q4 earnings results?

29 January

 

What happened last quarter?

Q3 saw Facebook deliver earnings of $2.12 per share, beating the $1.91 analysts were expecting. Revenue also topped forecasts, coming in at $17.65 billion. Analysts had been expecting $17.37 billion. Monthly users came in at 2.41 billion, up 1.65% from the previous quarter. This was enough to see Facebook’s share price rise 5.18% in after-hours trading.

2.41billion

Number of Facebook's monthly users

   

 

Why should investors care?

Potentially undervalued share price

Seeking Alpha suggests that analysts are undervaluing Facebook. This makes earnings-fuelled correction even more likely. Seeking Alpha's analysis suggests that the current earnings trend suggest Facebook could deliver earnings per share of between $2.6 and $2.9 - higher than the predicted $2.5.

Facebook has form beating analysts’ earnings expectations, having crushed forecasts for eight quarters in a row. Doing so again wouldn't be a surprise.

Seeking Alpha also point out that the stock is "trading at 30% below its fair value, as per 2-stage discounted cash flow analysis."

 

Options markets suggests gains

Michael Kramer, founder of Mott Capital Management, suggests that options trading indicates Facebook’s share price could rise post results. Writing in Forbes, Kramer says: "The stock has seen some bullish option betting going into the results for the February 21 $210 strike price calls.

Since the beginning of the year, the number of open contracts has increased to 25,000, from approximately 11,700 contracts on January 2. It appears that the majority of the open interest increase occurred on January 10."

 

Strong advertising revenue

Facebook’s primary revenue stream is advertising. In 2018, advertising brought in 98.5% of Facebook’s $55.8 billion in revenue. For 2019, Factset believe it will represent 98.5% of $70.5 billion. Yet failing to tap new revenue streams could hamper its long-term growth prospects. Facebook’s decision not to advertise on Whatsapp - which has over 1.5 billion users - cuts off one potential advertising stream.

$70.5Billion

Facebook's revenue from 2019 - an estimated 98.5% from advertising

  

The social media giant will controversially continue to exempt political ads from its fact-checking, which, going into election year, should pay dividends. But shareholders will want to hear about how Facebook is innovating in areas like online payments and AI.

 

What are the expectations for Facebook’s Q4 earnings results?

Expectations are for Facebook to post $2.53 earnings per share, up 6.3% from the $2.38 seen in the same quarter last year. Revenue is expected to come in at $20.88 billion, up from the $16.91 billion seen in the same quarter last year .

Costs are likely to grow to between $54 billion to $59 billion, higher than 2019's $46 billion to $48 billion. According to Factset, monthly active users are expected to increase 7% to 2.49 billion.

 

Market Cap$621.51bn
PE ratio (TTM)34.84
EPS (TTM)6.26
Operating Margin (TTM)34.49%

Facebook share price vitals, Yahoo Finance, 27 January 2020

 

What’s the long-term outlook for Facebook’s share price?

Among analysts tracking the stock, the average 12-month price target is $245.45. That's a 12.6% upside on the current price. Of the 53 analytics tracking the stock on the Financial Times, 48 have a buy or outperform rating, 3 rate Facebook a hold and 2 have it at underperform. None rate Facebook a sell.

Monness Crespi Hardt analyst Brian J. White believes that 2020 could again be Facebook’s year. White has a $260 price target on the stock - a 19.3% upside on the current share price. In a note to investors on 21 January, White commented:

“Despite the challenging regulatory environment, growing antitrust scrutiny, ad targeting headwinds and transition to Stories [short user-generated photo or video collections], Facebook turned in a strong performance in 2019 and we believe the stock remains attractive.”

“Despite the challenging regulatory environment, growing antitrust scrutiny, ad targeting headwinds and transition to Stories [short user-generated photo or video collections], Facebook turned in a strong performance in 2019 and we believe the stock remains attractive” - Monness Crespi Hardt analyst Brian J. White

 

Continue reading for FREE

Join the 30,000+ subscribers getting market-moving news every week.

Written by

Free ebook

Tricks of the trade: 7 interviews with the world’s top traders

Get it now

Disclaimer

Past performance is not a reliable indicator of future results.

CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.

CMC Markets does not endorse or offer opinion on the trading strategies used by the author. Their trading strategies do not guarantee any return and CMC Markets shall not be held responsible for any loss that you may incur, either directly or indirectly, arising from any investment based on any information contained herein.

*Tax treatment depends on individual circumstances and can change or may differ in a jurisdiction other than the UK.

Related articles