Stock of the day 28/07/2015 – Facebook Inc

Like its fellow US prestige stocks Google, Netflix, Amazon and Apple, Facebook has largely spent 2015 breaking its own records; can it continue this trend with its second quarter results on Wednesday?

After opening 2015 at $78.63 Facebook saw a relatively flat start to the year; even its fourth quarter results at the end of January failed to spark any sustained growth, despite beating analyst estimates across the board. Revenue nearly doubled to $3.85 billion, whilst profits saw a 70% increase to $701 million; the all-important user growth, meanwhile, continued at more than a healthy pace, with December 2014 seeing an 18% increase year-on-year to 890 million daily active users, 80% of which on mobile devices.

As mentioned, however, these figures only created a mild bump, leaving Facebook to hit a year low of $73.48 by the middle of February. However, a boost later in that month, seemingly following attempts by Mark Zuckerberg to reach out to the potential, and ever-elusive, user-growth El Dorado that is China, eventually gave way to a truly stellar second half of March. From the 17th to 24th March the stock grew by around 10%, hitting a then-high of $86 at its peak following the announcement of new features for its Messenger app that further pushed it into becoming its own, standalone, platform.


(Source: IT-Finance.com 28/07/2015)

Investors weren’t willing to keep the stock at this level for long, however, and across April and the start of May Facebook gradually tumbled back down to $77. In among this period were the company’s first quarter results, with slower revenue growth contributing to the stock’s spring slide. An obviously still impressive 42% growth in revenue to $3.5 billion was slightly lower than expected, whilst monthly user growth was still cheerfully robust, with a 13% jump to 1.44 billion. The most important thing to note from this release, however, was the ever-increasing role of mobile devices in Facebook’s results; 75% of its ad revenue came from mobile users, with monthly mobile users themselves growing by 24% to 1.25 billion. Compare that figure to the total monthly users, and it’s clear how vital mobile growth has become to Facebook.

May, and much of June, saw Facebook struggle to break through a $82 ceiling; that all changed, however, on June 22nd, when a report came out suggesting that the company was catching up with Google’s YouTube as the go-to place for companies to post videos marketing their product, with monthly views at a neck-and-neck 1.4 billion to 1.3 billion. Since video ad-revenue is the fastest ad-sector on the internet investors were understandably pleased, lifting the stock to an all-time high of $89. Facebook then lingered between $86 and $88 for the first half of July, before aggressive growth across July following the tech-sector boosting results from Netflix and Google saw the stock surge to within a hair’s breadth of $100, peaking at $99.29 on July 21st. Facebook has fallen slightly since then, and is at a current trading price of $94 (IT-Finance.com, 28/07/2015).

So what should investors look for in Facebook’s Q2 results? With mobile growth the current key figure, progress in this area, especially outside North America, will be in focus; so too will the aforementioned monthly video users. Interestingly Wednesday’s release should bring with it updates on the company’s intention to introduce a ‘Buy’ button on company’s pages as well as the previously announced Facebook Payment system for Messenger. Both will allow Facebook to enter the e-commerce business and add some extra muscle to its earnings potential, one that isn’t purely reliant on ad revenue.

Analysts are expected a 56.7% increase in earnings per share alongside a 37% jump in revenue to $3.98 billion, leaving Facebook with a consensus rating of ‘buy’ and an average target price of $98.11.

Tuesday’s stock news:

In the race to the bottom this Tuesday morning Royal Mail was the clear winner; slipping over 3% to a 2 month low of £4.88, the British institution fell afoul of Ofcom, which claimed that it was breaching competition law by proposing to raise the price of what it charges for bulk mail delivery. These bulk mail charges directly affect Royal Mail’s smaller rivals, who collect it from businesses and then pass it on to the larger postal company.

ITV impressed investors with its interim 2015 report this morning, causing the stock to climb by nearly 3% after the bell. Despite a 4% fall in ratings for the first half of the year, an 11% increase in total revenue to £1.36 billion (prompted by a 5% increase in ad revenue), alongside a 25% jump in pre-tax profits to £391 million, more than made up for the sliding viewership.