Facebook share price: Q3 Earnings Preview

With social media giant Facebook (FB) set to report its third quarter results this Thursday, October 29, we examine some of the key things investors and traders should know ahead of these results.

Analysts remain bullish on Facebook heading into the Q3

Despite an ‘advertising boycott that whipped up widespread media concern during the early part of the year, analysts have remained overwhelmingly bullish on Facebook – with the sell-side community assigning the stock a Buy rating on average, according to MarketWatch.

That ad boycott, for reference, saw a number of high profile companies, including: Coke, Procter & Gamble, Samsung, Walmart, Diageo, CVS Health, and Verizon cut ad spend on the platform in reaction to Facebook’s response to a number of important social issues.

The average price target on FB currently stands at $298.32 per share – also according to MarketWatch – suggesting that analysts expect further upside from current price levels.

As with a number of high profile tech companies – including Microsoft and Amazon – analysts look to have grown increasingly optimistic about the social media giant’s prospects in the last month, with a number of investment banks raising their price targets or boosting their ratings on FB. Since the start of October and in regards to Facebook, we have seen:

• Deutsche Bank boosted their price target from $305 to $325 and retained their Buy rating
• Credit Suisse upped their rating from Neutral to Buy
• Jefferies reiterated their Buy rating and bumped up their price target from $310 to $320
• Goldman Sachs set a price target of $303 on the social media stock

Market sees through ad boycott

If the ad boycott staged during the early parts of the year didn’t dissuade the sell-side from liking Facebook stock, it looks to have had equally little impact on the broader market’s perception of the tech giant, with the stock up 35% YTD.

For the second quarter of FY20 Facebook beat Street expectations around revenues, profits and user growth, on a YoY basis reporting:

• Revenues of $18,687m, up 11%; against total costs and expenses of $12,724m, up 4%
• An operating margin of 32%, representing a 29% improvement on a PCP basis
• Net income of $5,178m, up 98%; and earnings per share of $1.80, also up 98%
• A cash position of $58.24bn at the close of the second quarter

Interestingly, though Facebook often faces a narrative of declining use, the social media giant again posted solid growth across its daily and monthly user statistics, reporting Q3 daily active users (DAUs) of 1.79bn (up 12%) and monthly active users (MAUs) of 2.70bn (up 12%).

‘Facebook DAUs and MAUs in the second quarter of 2020 reflect increased engagement as people around the world sheltered in place and used our products to connect with the people and organizations they care about,’ the company said.

Facebook currently trades on a ~34x earnings multiple, somewhat ahead of the 23x earnings multiple of the Nasdaq index.

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