Back to top

Should You Buy Facebook (FB) Stock with Q2 Earnings In View?

Read MoreHide Full Article

Facebook (FB - Free Report) saw its stock price climb over 1.5% on Monday, despite an announcement that some 800,000 users might have been affected by a bug that unblocked users people had previously blocked. So let’s see what has investors excited about Facebook stock even with negativity still swirling around the social media powerhouse.

Recent News

Facebook said on Monday that a bug, which was active between May 29 and June 5, allowed users who had been blocked by others users to see some content they had shared. The company said this problem has been fixed, but it marked the second, somewhat tame software bug in less than a month. In May, the company noted that as many as 14 million users could have posted publicly on Facebook even if their settings were more private.

Reports also surfaced on Monday that Facebook is set to buy an artificial intelligence firm in order to help the company further address its fake news problem. Facebook is ready to buy London-based Bloomsbury AI for roughly $30 million, according to TechCrunch. The company has already said it will bolster its human fake news and content watchdog unit, but an AI push seems needed for a company with 2.20 billion monthly active users.

Fundamentals

Facebook closed the first quarter with 1.45 billion DAUs, up 13% from the year-ago period, with the platform’s MAUs also up 13% to 2.20 billion—and these figures don’t include Instagram or WhatsApp. The popular photo and video-sharing app just recently announced that reached 1 billion monthly active users, up from 800 million in September 2017.

Instagram crushes Twitter’s (TWTR - Free Report) 336 million MAUs. Meanwhile, its DAUs surpassed 500 million, which destroys Snapchat’s (SNAP - Free Report) 191 million. Instagram also—in a move that will see it compete more directly against YouTube—debuted its new IGTV on June 20. The new app/feature will allow users to upload hour-long video content, up from its previous one-minute limit.

Facebook’s impressive user base across multiple platforms has helped it turn into a money-making powerhouse that dominates the advertising business along Google (GOOGL - Free Report) . Last quarter, Facebook reported revenues of $11.97 billion, with ad sales accounting for roughly 99% of total Q1 revenue.

With roughly 40% of the world’s population using a Facebook-owned platform, the company can clearly grab a ton of advertising dollars. Facebook is reportedly set to grab 19.6% of all U.S. digital ad dollars in 2018, according to eMarketer. Meanwhile, Instagram is projected to pull in 5%.

These figures help demonstrate why Facebook has become a Wall Street powerhouse and why it is expected to continue to grow as subscription, non-ad supported streaming giants Netflix (NFLX - Free Report) , Amazon (AMZN - Free Report) , and even Spotify (SPOT - Free Report) become more popular. The company also has plans to roll out more live video and push further into the world of AR and VR.

Price Movement/ Valuation

Shares of Facebook have climbed roughly 33% over the last year. Facebook stock has climbed 12% since the start of the year, despite its massive March selloff. In fact, shares of Facebook have soared over 26% since their March lows.  

Facebook stock is currently trading at 22.9X forward 12-month Zacks Consensus EPS estimates, which marks a substantial discount compared to its industry’s 30.9X average. Over the last year, Facebook stock has traded as high as 31.5X and as low as 19.9X, with a one-year median of 27.2X.

Investors will also see that Facebook is currently trading close to its five-year low, and therefore it is hardly a stretch to say that FB stock appears to be rather attractive, if not flat-out cheap—especially considering its massive growth prospects.

Growth

Facebook, which announced that it will release its second quarter financial results on July 25, is projected to see its Q2 revenues climb by 43.7% to touch $13.39 billion, based on our current Zacks Consensus Estimate. Looking ahead to the full-year, Facebook revenues are expected to climb by 40.5% to touch $57.12 billion.

Moving onto the other end of the income statement, Facebook’s adjusted quarterly earnings are projected to pop by 31.6% to reach $1.73 per share, while its full-year EPS figure is expected to expand by 24.4%.

Facebook is currently a Zacks Rank #3 (Hold) that sports an “A” grade for Growth in our Style Scores system. FB looks like it might be worth considering at the moment based on its outstanding valuation picture and growth outlook.

Looking for Stocks with Skyrocketing Upside?

Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.

Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.

See the pot trades we're targeting>>



More from Zacks Stocks in the News

You May Like