The Bullish Thesis Remains for Facebook, Inc. Post-Earnings
Matt McCall
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I’ve never been shy about my interest in Facebook, Inc. (NASDAQ: FB ). Even after the Cambridge Analytica scandal sent the stock to its lowest level since June of last year, I maintained my long-term bullish view that the selling was an overreaction and that the stock would regain its lost ground.
The reaction to the data breach caused FB stock to enter into its own personal bear market — it fell 24% from its all-time high in February to the low in March. The stock has been choppy in the time since, but a blowout earnings report last week finally gave Facebook stock some new life.
The company reported earnings of $1.69 a share, well above the $1.33 a share that analysts had been expecting. Revenue was just as impressive, increasing 49% year-over-year to $11.97 billion and also beating the consensus by $560 million. The majority of the top-line gains came from advertising, which was up 50% over the previous year. And to top it all off, the number of users came in above estimates, with daily and monthly active users each up 13%.
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As you know, I pay close attention to a stock’s fundamentals and technicals when I’m interested in it as an investment. So it shouldn’t be a big surprise that how FB traded after the quarterly report was released is just as important to me as what the numbers were.
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We’ve seen a trend recently of stocks being unable to hold onto post-earnings rallies as investors sell into the news, but Facebook was different in that it had already been priced for an earnings miss due to the scandal. When the numbers proved that advertisers were not abandoning the social media giant, it was reassurance that the company can and will remain a leader.
I had said from the start that advertisers would stay put. They don’t really have a choice — the millennials are advertisers’ golden goose, and those advertisers know that one good way to get in front of this growing generation is through social media. Facebook and Instagram give them the ability to do just that, so naturally they’re going to pay up to market their products and services as long as the sites and apps keep attracting millennial eyeballs.
In the end, I can’t be sure when the Cambridge Analytica scandal will be old news, but this week’s strong earnings report and subsequent reaction is definitely a step in the right direction. Not only are we getting closer to putting this headline in the rearview mirror every single day, we are also getting closer to FB eventually becoming a $200 stock.
Matthew McCall is the founder and president of Penn Financial Group, an investment advisory firm, as well as the editor of FUTR Stocks and the ETF Bulletin. Matt just launched two new investment advisories focused around the “next” generation investing theme. His trademark three-prong investing approach targets the mega-trends old Wall Street is missing out on. Click here for more information on the “NexGen” Experience .
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