Facebook (FB) shares have gone on an impressive run over the past several weeks, rising more than 23% from $255 on March 8 to a recent 52-week high of $315. These gains have bested not only the S&P 500 index, but also the broader technology sector. Can Facebook’s momentum continue or is it time to lock in some profits?
The social media giant will report first quarter fiscal 2021 earnings results after the closing bell Wednesday. Despite constant headline risk towards, including regulatory scrutiny, Facebook has been a model of consistency in terms of execution, topping consensus earnings expectations in each of the past twelve quarters. what’s more, prior concerns about softness in the digital advertising market have now vanished. Facebook is now benefiting from a combination of factors.
Aside from an improved ad-spending environment, there’s also an accelerated shift to digital by corporations who are looking to leverage the services that Facebook offers. In terms of product engagement across its family of platforms (Facebook, Messenger, Instagram, Messenger and WhatsApp) Facebook continues to enjoy significant increases in usage, driven by coronavirus-induced lockdowns.
With more people across the globe spending more time online due to lockdown restrictions, Facebook’s advertising clients have had no choice but to increase their ad spending. The increased spending has been due to recent Facebook initiatives to enable e-commerce services to users. This is key to helping drive continue increases in average revenue per user — a closely-watched metric in determining the overall cash flow generating capability of the company. On Wednesday the market will want to know how much future revenue can these services contribute to the bottom line?
For the three months that ended March, the Menlo Park, Calif.-based company is expected to earn $2.36 per share on revenue of $23.55 billion. This compares to the year-ago quarter when earnings came to $1.71 per share on revenue of $17.74 billion. For the full year, ending in December, earnings are projected to rise 12.3% year over year to $11.33 per share, while full-year revenue of $107.7 billion would rise 23.3% year over year.
The digital advertising business is Facebook’s lifeblood and has been the main drivers of the stock. The company has enjoyed a leading position in the online advertising thanks to its duopoly shared with Google (GOOG , GOOGL). At the same time, however, that success has brought about tons of political risks and government antitrust cases. To offset these risks, Facebook has begun to diversify its business away from just advertising and growing its capabilities in areas such as AR/VR as well as the e-commerce opportunities.
In the fourth quarter, Facebook cruised by analysts’ top- and bottom-line estimates, posting an adjusted profit of $3.88 per share rose 51% year over year, beating estimates by a whopping 64 cents. Revenue rose 33% year over year to $28.07 billion, beating estimates by $1.64 billion. I expect similar-to-better results on Wednesday. While the Facebook stock is not as cheap today as it were two months ago, if Facebook produce strong daily active users and monthly active users, while providing upbeat guidance, the stock should continue to outperform as it has over the past several sessions.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Richard Saintvilus
After having spent 20 years in the IT industry serving in various roles from system administration to network engineer, Richard Saintvilus became a finance writer, covering the investor's view on the premise that everyone deserves a level playing field. His background as an engineer with strong analytical skills helps him provide actionable insights to investors. Saintvilus is a Warren Buffett disciple who bases his investment decisions on the quality of a company's management, its growth prospects, return on equity and other metrics, including price-to-earnings ratios. He employs conservative strategies to increase capital, while keeping a watchful eye on macro-economic events to mitigate downside risk. Saintvilus' work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets. You can follow him on Twitter at @Richard_STv.
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