Advertisment

High expectations for Facebook’s Q1 Earnings

author-image
CIOL Writers
New Update
CIOL High expectations for Facebook’s Q1 Earnings

Earnings season hasn’t been kind to the tech industry — Google, Microsoft, Apple, and Twitter are among those whose first-quarter results have been disappointing. Will Facebook Inc. be the exception? Many are saying, Yes. Analysts believe this is one company that can halt the tech industry’s recent earnings malaise.

Advertisment

RBC Capital Markets analyst Mark Mahaney expects Facebook to report quarterly revenue of $5.43 billion and non-GAAP earnings per share of 68 cents. That is just above Wall Street consensus, at $5.25 billion and 62 cents respectively, according to Thomson Reuters.

Last quarter, Facebook beating all expectations, posted revenue that was 9 percent higher than the Street expected, and earnings per share 11 cents above consensus estimates.

Experts believe that Facebook's growth outlook — like Alphabet and Netflix — is extremely strong, and thus are looking for dips to buy, said Mahaney. "The bigger the expectations correction, the bigger the buying opportunity," he said. RBC has a "buy" rating on the stock and a $160 price target.

Advertisment

On average, analysts expect the company to report revenue growth of 48 percent over last year. That puts Facebook in the hyper-growth category and is one reason it is largely seen as a must-own stock for investors long term. By comparison, Alphabet delivered 23 percent growth when it reported results on Thursday, and the average S&P 500 stocks are growing revenue at about 4 to 5 percent annually.

RBC has Facebook trading at 24 times next year's earnings and expects the company to grow earnings by 40 percent over the next three years. By comparison, the firm has Google trading at 19 times next year's earnings and expects it to grow earnings by 15 to 20 percent over the next three years. In other words, Facebook has twice the growth outlook as a Google and trades at about a third higher the multiple, said Mahaney. "Relative to growth, Facebook is actually more attractive than Google," he added.

Facebook had got rave reviews for CEO Mark Zuckerberg's 10-year plan for Facebook that he laid out at the company's annual conference for software developers earlier this month.

Advertisment

In a report to investors on Monday, Cantor Fitzgerald analyst Youssef Squali saidMobile ad revenue is expected to contribute well over 80 percent of Facebook's revenue this quarter. Cantor has a "buy" rating on the stock and a $140 price target.

"Google highlighted mobile as the number one driver of revenue growth in its first quarter results, which bodes well for Facebook," said Squali.

Instagram and video ads are expected to begin to contribute meaningfully to Facebook's revenues starting this year. Facebook Live and its messaging platforms — Messenger and WhatsApp — are likely to deliver returns within three to five years, and investments in augmented reality and virtual reality will likely begin to pay off over the longer term.

Advertisment

Oculus Rift VR platform has significant potential to change the way Facebook users communicate, and applications for education, gaming and services are likely in the future, Wedbush analyst Michael Pachter said in his earnings preview note last week. Pachter has a "buy" rating and a $128 price target.

"Competition has been slow to materialize and we believe that Facebook's network effect and large user base all but ensure that it remains the dominant social media platform for the next decade and beyond," he said

As of fourth quarter, Facebook had 1.59 billion users. It's only going to get bigger, says eMarketer which projects a monthly user base of 1.87 billion by 2020. In 2016, 162.9 million Americans will log on to Facebook at least once a month, along with more than half the UK population, or 33.2 million people.

twitter facebook developer tech-news must-read