Facebook Up on Attractive Valuations and Growth Prospects

Facebook Up on Attractive Valuations and Growth Prospects

 
In spite of posting an overwhelmingly positive third-quarter results that exceeded estimates, the stock of social media giant Facebook Inc. (Nasdaq: FB) lost nearly 10% value to record a low of $114.29 in mid-November. The company’s warning about the possibility of a decline in the fourth-quarter revenue growth and increase in expenses took a toll on the share price. However, there are ample reasons to believe that the stock, which closed at $124.85 on Monday, would rise further in the days leading up to the swearing-in ceremony of Trump.

For fiscal 2016 third-quarter, Facebook reported a 166% increase in net profit to $2.4 billion or $0.82 per share, from $896 million or $0.31 per share in the similar period of 2015. Excluding costs, the California-based company posted Q3 2016 adjusted earnings of $1.09 per share, up from adjusted earnings of $0.57 per share in Q3 2015. Similarly, the top line of the company also increased to $7.01 billion, from $4.5 billion last year. Analysts expected the company to post earnings of $0.97 per share on revenue of $6.92 billion.

Historically, there were only three instances when the company surpassed the analysts’ expectations by such a wide margin. In those three circumstances, according to Kensho data, the stock had appreciated by about 67%. However, the stock failed to replicate similar price movement last time. As mentioned earlier, the fourth-quarter revenue growth warnings discouraged further investments in the stock. Since then, the stock had already lost about 10% of its value. So, considering the fact that the Q3 advertising revenue of $6.82 billion went past the Street’s expectation of $6.71 billion, we can anticipate value buying to come in.

Facebook also reported monthly active users of 1.79 billion, a figure above the 1.75 billion expected by analysts’. Most importantly, the number of users who used mobile to access Facebook crossed the landmark of 1 billion in the previous quarter. Furthermore, during the quarter ended October, the company reported average revenue per user of $4.01.

Facebook anticipates earnings of $4.09 per share for fiscal 2016. It is more than triple the amount of $1.29 per share reported in fiscal 2015. For fiscal 2017, the company expects earnings of $5.21 per share, which equates to a growth of 27% from the anticipated earnings in 2016.

In the recent past, Facebook has made impressive acquisitions, including that of Whatsapp and Oculus VR, and is expected to do so in the future to keep ahead of competition. In fact, last April, the company’s founder and CEO Mark Zuckerberg revealed his 10-year plan for sustained growth. Thus, considering the prospects of strong bounce back in the share price, at this point in time, an investor should consider purchasing the stock on dips.

The stock of Facebook has formed a triple bottom pattern on the price chart. Furthermore, the stock is also trading above the major support level of 120. The rising stochastic oscillator confirms an increase in momentum. Thus, we can anticipate the stock to rise further in the near-term.

Facebook - Technical Analysis - 10th January 2017

A trader can use the opportunity to gain from the uptrend by investing in a call option contract offered by a reputed binary broker of choice. The call option is also referred to as high or above contract by some brokers. The trader should invest when the stock trades near $124 in the equity market. Finally, an expiry period of one week should be allowed for the contract.


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