Facebook share price: 3 key considerations ahead of Q1 earnings

US internet company Facebook (NASDAQ: FB) is due to release its financial results for the first quarter of 2020 on Wednesday 29 April 2020 after market close (17:00 ET). Here are three things for investors to know ahead of the upcoming earnings.

1. Facebook’s earnings beat estimates for the last two quarters

Analysts polled by Factset have given a consensus earnings per share (EPS) estimate of US$1.75 per share alongside expected revenues of US$17.4 billion for the social media giant’s Q1 earnings.

For shareholders, it is probably worth noting that Q1 2019’s reported EPS of US$0.85 per share were well off analysts’ EPS projections of US$1.62. Reported revenue at US$15.1 billion was in line with their sales projections of US$15.0 billion.

However, for the last two quarters – Q4 and Q3 of 2019 – actualised earnings surpassed analyst estimates by 1.6% and 11% respectively, so the overall expectation is likely still skewed towards such a possibility.

In terms of share price, Facebook’s share price is down 7.4% year-to-date, with most of the drop having occurred between February and March 2020 during the peak of the coronavirus outbreak.

The 12-month median share price target for Facebook Inc is US$215 per share, based on Factset estimates tallied from 45 analysts. Of these, 38 brokers have rated the stock a ‘buy’ while three have rated it a ‘sell’.

According to IG trading data, Facebook's stock value has recovered over 27% since 06 April and is trading above US$190 per share.

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2. Official guidance: ‘our business is adversely affected’

Alex Schultz, VP of Analytics, and Jay Parikh, VP of Engineering at Facebook had also written in a late-March blog post that ‘our business is being adversely affected like so many others around the world’, with the advertising segment particularly 'weakened’.

They explained that while its messaging services – namely Messenger and WhatsApp – have seen an increase in traffic and engagement as more people practised physical distancing, Facebook does not monetise most of those services.

They added that the company is also facing challenges in keeping its products and services running smoothly during this emergency, and is ‘doing everything we can to keep our apps fast, stable, and reliable’.

‘Our services were built to withstand spikes during events such as the Olympics or on New Year’s Eve. However, those happen infrequently, and we have plenty of time to prepare for them. The usage growth from Covid-19 is unprecedented across the industry, and we are experiencing new records in usage almost every day’, they noted.

Furthermore, maintaining stability throughout these usage spikes is proving even more challenging than usual now that most employees are working from home, they added.

3. Analysts lower Facebook's advertising revenue forecast

As mentioned earlier, it is not surprising that Facebook’s advertising revenues will be one of the hardest hit segments, as more and more companies lower their digital marketing budgets and ad spend amid the coronavirus pandemic.

As Chinese internet giants Baidu and Weibo had learned in February 2020 – when the virus was at a peak in the country – a drop in advertising earnings in the range of 5% to 13% is to be expected.

US investment bank Cowan & Co in a recent analysis lowered their advertising revenue forecast for Facebook by US$15.7 billion to US$67.8 billion for the 2020 financial year.

Cowan analysts further predicted that Facebook, along with Google, could see their global ad revenues erased by a combined US$44 billion. Even with a double-digit revenue decline, the analysts believe that Facebook will continue to be hugely profitable and will still rake in US$33.7 billion in operating income on a 49% EBITDA margin.

Finally, they forecasted that Facebook’s advertising business should recover to pre-coronavirus levels by 2021, with revenues potentially growing 23% year-over-year to US$83 billion.

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