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Buy Facebook Stock After Earnings Despite Coronavirus Ad Fears?
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Facebook shares surged after hours Wednesday and continued to climb Thursday after the social media powerhouse’s Q1 2020 financial results impressed Wall Street. So, let’s see if investors might want to buy FB stock as a safe-haven during the coronavirus economic downturn.
Quick Overall Earnings Picture
Facebook, Alphabet (GOOGL - Free Report) , and Microsoft (MSFT - Free Report) helped drive the market on Wednesday, as big-tech proves to be one of the safer bets amid the economic uncertainty. The recent climb is part the market’s rally from its March 23 lows.
That said, stocks could fall again, or return to volatility, with the full economic impact of the coronavirus not expected to be felt until the second quarter. For instance, our most recent Zacks estimates call for total S&P 500 Q1 earnings to fall 15.5%, with Q2 earnings now expected to tumble 34.3% (also read: The Coronavirus Pandemic and its Impact on Corporate Earnings).
Safety in Facebook?
Facebook’s daily active users climbed 11% to 1.73 billion during the first quarter, with its MAUs up 10% to 2.6 billion. Both of these growth rates topped recent periods. Plus, overall engagement across Facebook, Instagram, WhatsApp, and Messenger increased as millions of people around the world are cooped up inside.
This growth helped Facebook’s Q1 revenue pop 18% to reach $17.74 billion. Meanwhile, its adjusted first quarter earnings soared over 100% from the year-ago period to hit $1.71 a share. Perhaps more importantly, FB executives calmed Wall Street nerves about its advertising sales during the coronavirus.
Facebook noted that it “experienced a significant reduction in the demand for advertising, as well as a related decline in the pricing of our ads, over the last three weeks of the first quarter of 2020.”
But luckily for investors, FB said that “after the initial steep decrease in advertising revenue in March, we have seen signs of stability reflected in the first three weeks of April, where advertising revenue has been approximately flat compared to the same period a year ago.”
The coronavirus economic downturn and uncertainty are poised to continue to impact its core ad business, which makes up roughly 98% of total revenue. Despite the expected downturn, as businesses cut back on spending, Facebook and its various platforms will remain highly attractive in an age where people pay not to see ads, from Netflix (NFLX - Free Report) to Spotify (SPOT - Free Report) .
Bottom Line
FB stock closed regular trading Thursday 9% below its 52-week highs at $204.71 a share. Facebook shares have also lagged the S&P 500 during its recent climb, which could mean FB might be ready to run higher. And the company’s $60.29 billion in cash and equivalents should help it weather the coronavirus pandemic.
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This outperformance has not just been a recent phenomenon. From 2000 – 2019, while the S&P averaged +6.0% per year, our top strategies averaged up to +54.7% per year.
Buy Facebook Stock After Earnings Despite Coronavirus Ad Fears?
Facebook shares surged after hours Wednesday and continued to climb Thursday after the social media powerhouse’s Q1 2020 financial results impressed Wall Street. So, let’s see if investors might want to buy FB stock as a safe-haven during the coronavirus economic downturn.
Quick Overall Earnings Picture
Facebook, Alphabet (GOOGL - Free Report) , and Microsoft (MSFT - Free Report) helped drive the market on Wednesday, as big-tech proves to be one of the safer bets amid the economic uncertainty. The recent climb is part the market’s rally from its March 23 lows.
That said, stocks could fall again, or return to volatility, with the full economic impact of the coronavirus not expected to be felt until the second quarter. For instance, our most recent Zacks estimates call for total S&P 500 Q1 earnings to fall 15.5%, with Q2 earnings now expected to tumble 34.3% (also read: The Coronavirus Pandemic and its Impact on Corporate Earnings).
Safety in Facebook?
Facebook’s daily active users climbed 11% to 1.73 billion during the first quarter, with its MAUs up 10% to 2.6 billion. Both of these growth rates topped recent periods. Plus, overall engagement across Facebook, Instagram, WhatsApp, and Messenger increased as millions of people around the world are cooped up inside.
This growth helped Facebook’s Q1 revenue pop 18% to reach $17.74 billion. Meanwhile, its adjusted first quarter earnings soared over 100% from the year-ago period to hit $1.71 a share. Perhaps more importantly, FB executives calmed Wall Street nerves about its advertising sales during the coronavirus.
Facebook noted that it “experienced a significant reduction in the demand for advertising, as well as a related decline in the pricing of our ads, over the last three weeks of the first quarter of 2020.”
But luckily for investors, FB said that “after the initial steep decrease in advertising revenue in March, we have seen signs of stability reflected in the first three weeks of April, where advertising revenue has been approximately flat compared to the same period a year ago.”
The coronavirus economic downturn and uncertainty are poised to continue to impact its core ad business, which makes up roughly 98% of total revenue. Despite the expected downturn, as businesses cut back on spending, Facebook and its various platforms will remain highly attractive in an age where people pay not to see ads, from Netflix (NFLX - Free Report) to Spotify (SPOT - Free Report) .
Bottom Line
FB stock closed regular trading Thursday 9% below its 52-week highs at $204.71 a share. Facebook shares have also lagged the S&P 500 during its recent climb, which could mean FB might be ready to run higher. And the company’s $60.29 billion in cash and equivalents should help it weather the coronavirus pandemic.
Today's Best Stocks from Zacks
Would you like to see the updated picks from our best market-beating strategies? From 2017 through 2019, while the S&P 500 gained and impressive +53.6%, five of our strategies returned +65.8%, +97.1%, +118.0%, +175.7% and even +186.7%.
This outperformance has not just been a recent phenomenon. From 2000 – 2019, while the S&P averaged +6.0% per year, our top strategies averaged up to +54.7% per year.
See their latest picks free >>