Facebook (FB) stock could have big upside following Q4 earnings

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Social media leader Facebook (FB) will report its fourth-quarter numbers after the market close January 30. The consensus calls for earnings of $2.17 per share, up from $1.44 during the same period last year. FB stock sold off during the second half of 2018 but has started to recover slightly. However, the stock remains down 24% since the start of July.

Technical Analysis

FB stock was recently trading at $149.40 down $69.22 from its 12-month high and $26.38 above its 12-month low. InvestorsObserver’s Stock Score Report gives FB a 48 long-term technical score and a 40 short-term technical score. The stock has recent support above $130 and recent resistance below $155. Of the 34 analysts who cover the stock 23 rate it Strong Buy, 4 rate it Buy, 7 rate it Hold, 0 rate it Sell, and 0 rate it Strong Sell, FB gets a score of 58 from InvestorsObserver’s Stock Score Report.

Analysts' Thoughts

Facebook faces a couple tough hurdles. Users are still weary over privacy concerns after last year’s data scandal, and the company is losing its grip on the all-important young adult demographic. Advertisers have yet to flee the company and its massive audience, but there is fear that if Facebook continues to make headlines regarding user privacy that traffic will start to drop significantly, and advertisers will start to sever ties with the social media leader. However, at least for now, earnings continue to rise. And analysts forecast average annual earnings growth of 18% for the next five years.

Given the company’s history of posting big earnings surprises the forecast could be greatly understating what the future actually holds for the company. Facebook is also losing the teen audience with other platforms like Instagram and Snapchat gaining in relevance. Facebook does own Instagram, as well as the popular messaging platform WhatsApp, and both could turn into major revenue streams the company may need if the company is unable to reengage the teen market.

There is a lot of negativity priced into the stock at this time, so strong numbers on the top and bottom line could result in big upside following the report. The street expects a decent earnings beat with a whisper number of $2.26 and analysts have an average price target of $192.65 on the stock.

About Facebook Inc.

Facebook is the world's largest online social network, with more than 2 billion monthly active users. Users engage with each other in different ways, exchanging messages and sharing news events, photos, and videos. On the video side, the firm is in the process of building a library of premium content and monetizing it via ads or subscription revenue. Facebook refers to this as Facebook Watch. The firm's ecosystem consists mainly of the Facebook app, Instagram, Messenger, WhatsApp, and many features surrounding these products. Users can access Facebook on mobile devices and desktop. Advertising revenue represents more than 90% of the firm's total revenue, with 50% coming from the U.S. and Canada, and 25% from Europe. With gross margins above 80%, Facebook operates at a 40%-plus margin.

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