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Facebook with better than expected Q1 report

Summary (from latest annual and quarterly report)

  • Total stockholders' equity : 62.18 billion USD
  • Market Cap is 437.4 billion USD ( last price of the stock is 151.06 USD)
  • Facebook Inc operates a social networking website. The Company's products are Facebook, Instagram, Messenger, WhatsApp, and Oculus. Its products enable people to connect and share through mobile devices and personal computers
  •  Total stockholders' equity has increased from 44.21 billion USD in 2015 to 62.18 billion in 2017 (from latest quarterly report)
  • Company has 7.10 billion USD in cash on account (from latest quarterly report)
  • In 2017 long-term debt is zero, short – term debt is also zero,  in 2016 long-term debt was zero, short – term debt was 201 million USD
  • Company's revenue increased in 2016 to 27.63 billion USD from 17.92 billion in 2015
  • Net income in 2016 was 10.21 billion USD, Net income in 2015 was 3.68 billion USD
  • In last five years, FB has spent 11.43 billion USD on capital expenditures
  • FB has never declared or paid any cash dividend, the company intends to retain any future earnings and do not expect to pay cash dividends in the foreseeable future

 

Opinion about the company

Fundamentally it is a good company and in the future we can expect its growth (the company has no debt, big amount of cash on company's account, ROE is around 21 %).

 

Business and revenues should grow in the future but price of the stock is too expensive

Facebook is the largest social network in the world, with more than 1.86 billion monthly active users as of December 31, 2016. Facebook Inc operates a social networking website. The Company's products are Facebook, Instagram, Messenger, WhatsApp, and Oculus. Its products enable people to connect and share through mobile devices and personal computers. Facebook held an initial public offering on May 17, 2012, negotiating a share price of US$38. The company was valued at $104 billion, the largest valuation to date for a newly listed public company. Facebook has spent more than 27 billion USD on acquisitions, the biggest of them include WhatsApp for 19 billion USD, Instagram for 1 billion USD and Oculus for 2 billion USD. As of December 31, 2016, FB had 17,048 employees.

Most of Facebook's revenue comes from advertising. In March 2016, Facebook announced that it reached three million active advertisers with more than 70% from outside the US (an active advertiser is an advertiser that has advertised on the Facebook platform in the last 28 days). In 2016, FB continued to make progress on three main revenue growth priorities: continuing to capitalize on the shift to mobile, growing the number of marketers using their ad products, and making their ads more relevant and effective through continued adoption of newer ad formats and tools for marketers. Total revenue was $27.64 billion, up 54% year-over-year, and ad revenue was $26.89 billion, up 57% year-over-year. Net income was $10.22 billion with diluted earnings per share of $3.49. Daily active users (DAUs) were 1.23 billion on average for December 2016, an increase of 18% year-over-year. Monthly active users (MAUs) were 1.86 billion as of December 31, 2016, an increase of 17% year-over-year.

The positive news is that FB beat expectations on top and bottom lines in its Q1 report, where it also noted it's inching close to 2B monthly users. Daily active users were up 18% to 1.28B on average for March; monthly active users were up 17% to 1.94B. In its Q1 report, net income jumped 76% to $3.06B; costs and expenses rose just 40% against ad revenue gains of 51%. Mobile advertising revenue made up 85% of ad revenue, up from 82% a year ago. After better than expected Q1 report, analysts raised price targets on this stock. BofA/Merrill Lynch raised its price target to $170 from $165.

The fundamentals of the company are very good: the company has no debt, revenue for fiscal 2016 was $27.63 billion (an increase of 54% compared to 2015), net income in 2016 was 10.21 billion USD.. but with 437.4 billion USD market capitalization this company/stock is too expensive. 

Technical analysis

When we look at one year chart we can see that price of FB is moving in "uptrend". As long the price is above this trend line this stock is in the "BUY" zone and there is no indication of the trend reversal. If the price falls on the trendline and if we get "bullish" confirmation candle it would be a very good entry point for short-term traders who are trading with "stop loss" and "take profit" orders. Trend line represents very strong support level, if the price breaks this trend line it would be a very strong "SELL" signal and we have an open way to $140 ( this is also support level, $132 represents strong support ). If the price jumps above $154 (short term resistance level) that would be a confirmation of "BULLISH" trend and open way to $160 and maybe $165.

 

Conclusion - I would not recommend investing in this stock (only as short term trader with "stop loss" and "take profit" orders)

Facebook is the largest social network in the world, with more than 1.86 billion monthly active users as of December 31, 2016. The positive news is that FB beat expectations on top and bottom lines in its Q1 report, where it also noted it's inching close to 2B monthly users. Daily active users were up 18% to 1.28B on average for March; monthly active users were up 17% to 1.94B. In its Q1 report, net income jumped 76% to $3.06B; costs and expenses rose just 40% against ad revenue gains of 51%. Mobile advertising revenue made up 85% of ad revenue, up from 82% a year ago. After better than expected Q1 report, analysts raised price targets on this stock. BofA/Merrill Lynch raised its price target to $170 from $165. The fundamentals of the company are very good but with 434.7 billion USD market capitalization this company/stock is too expensive. I would not recommend investing in this stock (only as short term trader with "stop loss" and "take profit" orders). If the price jumps above $154 (short term resistance level) that would be a confirmation of "BULLISH" trend and open way to $160 and maybe $165. The price of this stock is correlated with the situation in the USA, a global economic situation also affects the price of this stock. The stock price is highly correlated with NDX, SPX, and DJIA.

 

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