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Wall Street Is Bullish Ahead Of Facebook Q4 Earnings
Facebook stock has been dragged by concerns of revenue/earnings slowdown, driven by management’s recent commentary. Facebook CFO David Wehner had stated, on the Q3 2016 earnings call, that ad load growth would slow “meaningfully”, which could impact Q4 revenue growth. The Facebook CFO also mentioned that 2017 will be a year of heightened investment activity at the social networking giant, which could lead to a contraction in Facebook’s profit margins. This will mean slower earnings growth, to go along with the slower top line growth.
Given that the FB stock trades at a PE of 51 (as of Jan 27th close price), revenue/earnings slowdown is the last thing investors would let go unpunished. As a result of the cautious commentary from the management, the Facebook stock price tanked following the last earnings call, going from $127 to $115 within 2 weeks. However, the negative concerns were overblown, as we had highlighted in earlier posts. As a result, Facebook entered 2017 on significantly lower expectations, a fact which remains unchanged going into the earnings call. Recent Wall Street commentary converges with this theory as well.
In a recent bullish note, Pacific Crest Analyst Andy Hargreaves, who has rated FB stock at “Overweight” (1) with a $150 price target, noted that “opportunities for Facebook to raise ad pricing and grow monetization” are “more than counterbalance risk of declining ad load growth.” More recently, analysts at Keybanc echoed a similar bullish outlook on the Facebook stock. As per thefly.com, KeyBanc believes that Facebook’s “growth outlook remains solid” while concerns regarding expenses have been overblown. The firm, with an “overweight” rating and $150 PT for FB stock, believes that Facebook will topple Q4 consensus estimates.
Operating Metrics Point To Facebook’s Continued Strong Performance
The latest Facebook benchmark report from Nanigans supports the thesis of “concerns being overdone” with respect to Facebook’s growth. Facebook’s core metrics, like Click Through Rates (CTR), Cost Per Click (CPC) and Cost Per Mille (CPM) are important indicators of the overall performance of Facebook as an ad-platform.
The Facebook advertising benchmark report from Nanigans, an ad technology firm offering solutions to advertisers, offers a peek into these core metrics. We have highlighted the key takeaways from the latest Nanigans report below.
– Return on Ad spend grew by 33% YoY while e-commerce mobile spend registered a 23% YoY growth.
– Global CTRs rose 42% YoY, coming in at 1.59% for the quarter.
– Global CPMs rose 10% YoY to $7.01 while CPCs declined 23% YoY to $0.44.
The slowdown in CPC growth was attributed to an increase in ad spend going to the Facebook audience network, which generated lower ad rates compared to native Facebook ads and also the continued shift to mobile versus PC. However, the declines in the CPC will be more than offset by the growth in impressions, which have been growing at 40%+ rates over the last few quarters. All in all, Facebook’s operating metrics indicate a strong performance through the holiday quarter, which should also reflect in Facebook’s Q4 earnings report.
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Facebook Earnings Estimates And Revisions
Wall street consensus is for Facebook to report EPS of $1.31 (2) cents on top line of $8.5B, implying a 65% YoY growth in earnings and 45% YoY revenue growth. The analyst consensus has risen by 8.3% over the last 90 days. The consensus earnings estimate was $1.21 at the end of October 2016. The earnings whisper number anticipates Facebook to report an EPS of $1.37, good for a 6 cent earnings surprise and a 73.4% YoY growth. As covered in the earlier paragraph, strong readings across the core metrics in addition to the increased monetization efforts at Instagram, also owned by Facebook, make an earnings beat highly probable.
Facebook Earnings History And Post-Earnings Stock Price Movement
Facebook Inc (NASDAQ:FB) has a very strong track record of trumping analyst estimates. The company has beaten analyst estimates in 16 out of the 18 earnings reports the company has released over its life as a publicly listed company. The company has delivered an earnings surprise in each of the last 4 quarters, with an average earnings surprise of 20.2%. Facebook stock has traded strongly following earnings announcements, with the stock rising by an average of 4.61% in the one trading session following the last 4 earnings reports. Hence, a beat/miss on the Q4 2016 numbers on Feb 1 could well decide the post-earnings movement of Facebook stock price.
Putting It All Together
Facebook Inc (NASDAQ:FB) is scheduled to report its Q4 2016 earnings after the market close on February 1. Wall Street analysts expect the company to report earnings of $1.31 on revenue of $8.5B, good for strong YoY growth. The current earnings whisper anticipates a 6 cent EPS beat. The likelihood of an earnings beat is also supported by Facebook’s record of consistently delivering earnings surprises and also the strong performance across core metrics during the holiday quarter, as reported by Nanigans. Facebook stock presents a solid investment opportunity supported by explosive revenue/earnings growth, the potential of Instagram and growing video ad revenue. Therefore, long-term investors should continue to accumulate Facebook stock on any dips and use any post-earnings pullback to buy Facebook shares at lower prices.
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The article FB Stock: Facebook Inc. (FB) Stock Is A Buy Ahead Of Q4 Earnings originally appeared on amigobulls.com. Watch our analysis video on FB (3).
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