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Facebook Stock Could Rise More after Its Q1 Earnings

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Facebook (NASDAQ:FB) stock fell 1.35% on April 27 and closed the trading session at $187.5. The company will likely report its first-quarter earnings results today after the market close. Among the FAANG group, Netflix (NASDAQ:NFLX) reported its earnings on April 21. Apple and Amazon (NASDAQ:AMZN) will likely report their earnings on Wednesday. Google parent Alphabet (NASDAQ:GOOGL) should report its earnings today after the market close.

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Notably, Facebook stock was trading 16.4% below its 52-week high of $224.20 and 36.8% above its 52-week low of $137.10. At the closing price on Tuesday, Facebook had a market capitalization of $534.5 billion. On a year-to-date basis, the stock has lost 8.6%. The S&P 500 and the Dow Jones have fallen by 10.9% and 15.4%, respectively, this year.

Facebook’s Q1 expectations

Wall Street expects Facebook to report an EPS of $1.75 on revenue of $17.5 billion for the first quarter. Analysts expect the earnings to decline by 7.6%, while they expect the revenues to grow by 16.1% YoY. In the first quarter of 2019, the company reported an EPS of $1.89 and revenue of $15.1 billion. The company’s revenue might miss due to weak ad revenues during the pandemic, but I think that the stock has strong growth potential in the months to come.

In the fourth quarter, Facebook’s revenue of $21.08 billion beat analysts’ estimates of $20.89 billion. The revenue also increased by 25% YoY (year-over-year) in the fourth quarter. The company reported an EPS of $2.56, which beat analysts’ estimates of $2.53. The earnings also increased by 8% YoY.

Analysts expect Facebook’s revenue to rise by 8.2% in 2020 to $76.5 billion. The sales will likely rise by 23.9% in 2021 to $94.8 billion. The adjusted earnings could rise by around 16.7% in 2020 to $7.50 per share. However, the profits will likely rise by 28.2% YoY to $9.62 per share in 2021.

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Efforts to boost the stock

Notably, Facebook stock has suffered in the past few months due to the coronavirus pandemic. The company’s advertising business, which is a key revenue driver, has been impacted negatively during the pandemic. In 2019, advertising revenues contributed around 98.5% of Facebook’s total revenue. Likewise, Twitter’s (NYSE:TWTR) ad business has also been impacted negatively amid the COVID-19 crisis, which led to a cut in its financial outlook. Facebook stock fell over 13% in March due to the pandemic. However, the company’s shares have regained momentum in April.

Early in April, the company launched a social app called “Tuned,” which is specifically for couples. Initially, Facebook’s Tuned app rolled out in the US and Canada, where the company generates most of its revenue. The new app could help boost the company’s revenues over the long term. Facebook also launched a mobile gaming app called “Facebook Gaming” on April 20 for streaming and watching live gameplays. The gaming app was expected to launch in June, but the company ramped up its plans due to higher gaming demand amid COVID-19.

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On April 21, Facebook also purchased a stake of about 10% in Jio, which is part of India’s Reliance Industries. The $5.7 billion investment in the Jio platform could help the company diversify its revenue stream. The Jio deal could also accelerate the company’s WhatsApp payment business in India and platform monetization.

Facebook will launch its Libra currency later this year, which will be provided by businesses like WhatsApp and Calibra. The Libra currency business would generate non-advertising revenue.

Analysts’ recommendations

Based on Reuters data, among the 52 analysts tracking Facebook stock, 44 recommend a “buy,” five recommend a “hold,” and three recommend a “sell.” Analysts’ mean target price on the stock is $218.15, which implies a 16.35% premium from the current level of $187.50.

Facebook’s 14-day relative strength index score is 59.7. The score indicates that the stock is approaching “overbought” levels. Facebook’s upper, middle, and lower Bollinger Band levels are $192.27, $173.4, and $154.5, respectively. On April 27, the stock closed near its upper Bollinger Band level, which indicates that it’s overbought.

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