- FB short interest fell by 12% in the last reporting cycle.
- Instagram is now getting live stories as Facebook makes major upgrades to various social properties.
- The stock has bounced off its 200-day moving average. Should investors buy FB stock now?
Facebook stock closed the last trading session at $121.77, a gain of over 4% in a single trading session. The stock has now nearly wiped out the all the losses incurred following the US presidential elections. with the short interest in Facebook stock declining by 12%, will Facebook's rally continue? Has the Facebook stock finally turned the corner?
Facebook Short Interest And Why It matters
So what exactly is short interest and why does it matter? Short interest represents the total number of shorted contracts at a particular point in time (October 31st). A rise in the short interest indicates that investors/traders anticipate the stock price to move lower, and can be interpreted as a bearish signal. A fall in the short interest indicates growing belief among investors that the stock could be heading higher in the future. With this brief background on short interest, let's now dig deeper into the Facebook short interest data. (See also: All You Need To Know About Facebook Inc.'s $6 Billion Share Buyback)
Short interest in Facebook fell by 12% in the last reporting cycle (October 31), with the number of shares shorted at the end of the reporting cycle coming in at 18.69M shares. The number of shares shorted is now very close to the 12 month low of 18.56M shares, which was hit on August 31. Looking at the short interest data over the last one month (2 reporting cycle), the short interest has fallen by 17% since the end of September, which is a huge decline during such a short time frame. With the short interest data declining, the recent rise in the stock price could see a greater number of shorts running for cover, which should add fuel to Facebook's rally coming out of its recent lows around $115.
Instagram Gets Live Video And Ephemeral Attributes
Facebook-owned popular photo sharing app, Instagram, has been busy adding new features and capability to the platform. After launching stories this past summer, Instagram has brought the features of Live video to its 'Stories' product and also added ephemeral photos and videos to its Instagram direct product. With 60% of its 500M monthly active users visiting the platform daily, the photo sharing network is high on engagement. Even more interesting is the fact that over 50% of Instagram users are in the 18-29 age groups. This highly engaged and young audience is extremely attractive from advertisers perspective which is leading to Instagram's rising popularity with advertisers. Instagram recently started allowing business accounts on the platform, which in combination with the advertising for business option should help Instagram become a bigger contributor to Facebook's overall growth.
Facebook Has Many Levers To Drive Growth
The latest concerns bogging down the Facebook stock price have mostly got to do with Facebook's comments of increased investments over the next year. The company warned investors of slowing earnings growth, as ad loads have peaked on the platform and the company plans to go into an investment overdrive. However, this isn't the first time that the company has warned about 'heightened' investment.
In October 2014, the company had warned of increased investments during FY 2015, which was expected to take a hit on the company's topline growth as well as profit margins. The result was a slowdown in top line growth to 43% YoY in FY 2015 while Net Income grew by 25% YoY, as the company saw margin contractions. However, the company more than made up for these investments with 2016 being more of a harvest year as the company reported a 56% YoY top line growth, 93% YoY growth in Non-GAAP Net Income and a 180% YoY growth in GAAP Income. As reported by Reuters, here is what Mark Zuckerberg had to say in October 2014:
"For us products don’t get that interesting until they have about a billion people using them."
With Messenger and Whatsapp now having crossed the 1B user mark, it might be time Facebook will invest aggressively to monetize these properties. With Payments and business messaging having been integrated with the messenger 'app' and Instagram only starting to focus on monetization, investments into developing and harvesting the monetization potential of these platforms was bound to happen at some point. The various advertiser feature additions to the different products should ensure that Facebook isn't running out of growth drivers anytime soon. (See also: Is Facebook Inc. (FB) Stock A Big Short?)
Facebook stock price recently closed above its 200 day moving average at 118.77 (as of Nov 21 close). With the stock price approaching the 50 day moving average (126.7), investors should observe the stock closely over the next few trading sessions. A breakout above the 50 day moving average on the daily chart accompanied by strong volume could be the confirmation Facebook bulls seek.
Facebook short interest has declined by 17% over the last 2 reporting cycles. The stock seems to have entered into a strong bullish move, gaining 4% in the lst trading session to close above the 200 day moving average. With the plethora of growth drivers still available, the Facebook growth story is still intact as fears around increased investment and ad load hitting a peak have been overblown. Investors should watch the stock closely and buy in on a strong breakout above the 50 day moving average, which should be a confirmation of the recent uptrend in Facebook stock price.
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