Stock of the day 27/01/2015 – Facebook Inc

Despite the rise of Twitter, Facebook still dominates the social media landscape, and after a strong 12 months announces its Q4 2014 earnings release on Wednesday.

A stellar 2013 lead Facebook to begin last year at a price of $54.81, briefly falling to what would be its 2014 low of $51.96 at the end of January. The rest of the year saw gradual gains, leading to a year high of $82.14 just before Christmas. Facebook was boosted by strong earnings release throughout the year, and entered 2015 up $27 to $78.93, only dipping slight since the New Year with the stock currently trading at $77.50.



Analysts are expecting this fourth quarter to be good; however, the question is, will it be good enough to satisfy investors? Facebook saw 72% year on year revenue growth in its first quarter, and whilst the average consensus is suggesting a 46.1% rise to $3.78 billion for Q4, the vast discrepancy between these first and fourth quarter figures may spook investors. Price movement will likely be dictated by how much investors are willing to acknowledge the impressive growth, even if this growth isn’t as robust as it once was. Analysts are also expecting earnings per share of $0.48, with a target price of $90.

Beyond revenue there are some other key factors investors will be eying. Like Netflix and its fluctuating subscription growth, any movement in Facebook’s new users will be carefully scrutinised, especially for a platform that is over a decade old. Last quarter saw 19% growth in daily users and 14% in monthly users, with nearly 30% growth in the increasingly important mobile user sector. Linked to this is engagement, as dormant users aren’t very useful advertisers. In Q3 Facebook saw its all-time high engagement, at 64% using the measurement of daily active users divided by monthly active users; any decline in this number will be seen as ominous by investors, as a site like Facebook lives and dies on its user engagement.

As Facebook slowly begin to roll out Facebook At Work (FB@Work), which allows workplace networking instead of a normal email service, sharing of documents etc, the company is trying to diversify its revenue streams. Interestingly, in Q3 ad prices increased 274% despite the actual amount of ads falling by 56%, a strong balance between pleasing investors without alienating users. If ad prices can keep going up whilst the amount of impressions per user decline, it will be another sign to investors that the company has a good handle on both halves of its business.

There are many obstacles in the way before Facebook could declare a strong earnings release, and with investors being especially unforgiving this earnings season, even Facebook’s positive forecast figures might not be enough to satisfy the masses.