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Facebook’s share price supercharged by strong earnings and TikTok rival

For a while, things were looking rough for Facebook’s [FB] share price.

With a slew of brands including Microsoft [MSFT], Adidas [ADDYY], Unilever [ULVR] and Starbucks [SBUX] pulling advertising from Facebook and Instagram in June and July as part of the ‘Stop Hate for Profit’ campaign, Facebook’s share price began to stagnate.

After climbing 43.5% between 1 April and 1 June (amounting to a 12% gain for the year), Facebook’s share price gained just 1.1% in June as the pace of the advertising boycott picked up, adding to analysts’ concerns about how Facebook was performing amid the COVID-19 pandemic.

Any investor worries proved to be unfounded, however. As of 7 August, Facebook’s share price sat at $268.44, having climbed 5.8% in the first week of the month after announcing strong results at the end of July.

 

 

Gunning for TikTok

When announcing its Q2 results on 30 July, Facebook beat analyst estimates on almost every count. Earnings per share stood at $1.80, compared to $1.39 estimated by Refinitv, and revenue for the quarter hit $18.7bn, ahead of the $17.4bn forecast. Such strong results were bound to boost investor confidence and spell good news for Facebook’s share price.

$18.7billion

Facebook's Q2 revenue

  

Average revenue per user was $7.05 compared to the $6.76 forecast by FactSet, while daily and monthly active users also beat expectations at 1.79 billion and 2.7 billion respectively. The report gave Facebook’s share price a renewed boost, and the stock had gained 8.17% by the next day's close.

But a surprise earnings beat wasn’t all Facebook had up its sleeve.

Just one week after the earnings release, Facebook revealed Instagram Reels — its answer to TikTok. The platform mimics much of the functionality of the Chinese-owned app that’s hugely popular with 16-24-year-olds. TikTok is widely considered the fastest-growing social media platform in the world, and it currently has over 100 million monthly active users in the US.

The release of Reels came at an opportune moment. Just two days after its release, US President Donald Trump issued two executive orders that ban “any transaction by any person, or with respect to any property, subject to the jurisdiction of the United States,” with ByteDance, TikTok's owners. The orders will come into effect next month. The announcement also coincided with a ban by the US Senate on federal employees downloading the app on government-issued devices.

100million

TikTok's monthly active users in the US

  

Earlier in the week, Trump issued a deadline of 15 September for TikTok, which is valued at $50bn by ByteDance, to be sold to Microsoft or face an outright ban in the US.

With the deadline just over a month away, timings are tight. If TikTok is banned, Reels will almost certainly become the go-to alternative for US users.

This prospect has clearly excited investors. Having slightly retreated following its earnings surge, Facebook’s share price gained 6.5% on the release of Reels, and it was up 22.09% in 2020 through 11 August’s close. This is well ahead of the 2.33% gain the S&P 500 has made across the same period, and helped to boost the Nasdaq’s 21.01% climb.

 

Looking ahead

With its growing user numbers, the launch of Reels, and the ad boycott appearing to slow down, things aren't looking bad for Facebook’s share price.

The latest surge saw Facebook’s share price shoot above its 50-day moving average, while numerous analysts raised their price target for the stock. Shebly Seyrafi of FBN Securities raised his price target from $220 to $280, rating it Outperform, while Maria Ripps, analyst at Canaccord Genuity lifted her price target to $290, up from $275.

Facebook’s stock currently holds an EPS rating of 99 according to Investor’s Business Daily, “meaning recent quarterly and annual earnings growth is outpacing 99% of all stocks,” while its relative strength rating stands at 81.

Of 48 analysts polled by CNN Money, 37 rate the social media giant a Buy, while the median target for Facebook’s share price is $290, representing a potential upside of 13.22% from its 11 August closing price.

 

Market Cap
$729.668bn
PE ratio (TTM)31.32
EPS (TTM)8.18
Quarterly Revenue Growth (YoY)10.7%

Facebook share price vitals, Yahoo Finance, 12 August 2020

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