- Latest Facebook earnings beat the “whisper number,” but not the “spidey sense” that the whisper number was too low.
- Facebook has already gained 20% since its previous quarterly results, making further gains tougher to come by.
- Expect a slow grind up from here.
Going into the latest earnings Facebook (NASDAQ:FB) investors had to fight to contain their glee.
The mood was beyond giddy, with a “whisper number” that didn’t really contain the whispers after a three-month gain of 20.5%, worth over $50 billion.
Expectations were for $3.98 billion in revenue and profits of 47 cents per share in the latest earnings. The “whisper number” was even higher, at 49 cents per share, about $1.1 billion. That would be a revenue growth rate of 38%, with 13% more profit than in the first quarter, which was considered a blow-out by analysts and sparked that race of buyers to the Facebook stock.
But somewhere beyond a “whisper number” on a hot stock is another number. Call it a “spidey-sense” number, a tingling expectation that the company will blow past the whisper into territory unknown.
Expectations were sky-high because Facebook dominates social and Facebook dominates mobile. Facebook owns what the market most wants.
The company’s decisions to focus on mobile, to add more support for video, and to build-out its own cloud rather than renting capacity from Amazon.com (NASDAQ:AMZN), had made it the “f” in FANG, the hot new acronym describing tech leadership, consisting of Facebook, Amazon.com, Netflix (NASDAQ:NFLX), and Google (NASDAQ:GOOG). The other players in that acronym had experienced blow-out quarters, followed by big gains, the reasoning went – why not Facebook?
Could $100/share on Facebook be far away?
On the surface, it turned out the optimists were right. In it's latest quarter, Facebook announced earnings of 50 cents per share, with revenue of $4.04 billion and an estimated 1.49 billion active users. All those numbers beat expectations, even the official whisper numbers. Yet the immediate reaction of the market to those numbers was to take the stock to the woodshed, cutting 3.66% off the price, to less than $93.
“A beat but not a blow-away beat,” was the verdict of those trying to explain the instant drop. It should be remembered, of course, that Twitter (NASDAQ:TWTR) rose immediately after second quarter earnings were announced a day earlier, only to reverse in the thinly traded after-market to open for trading 10% below where they had previously ended.
So don’t buy the instant action. It’s always possible buyers come in to an issue overnight, figuring in the case of Facebook that if it continues its present momentum it will achieve $2 of earnings per share, taking its Price/Earnings ratio from the present 97 to a more reasonable 48. Facebook and Google are pulling ahead in Internet advertising the way Apple (NASDAQ:AAPL) and Samsung are pulling ahead in mobile equipment, as one bull said.
The company’s CFO, David Wehner, boosted the stock in a TV interview after the earnings came in, pointing out the recent earnings would have been even better but for “headwinds” of the strong dollar against the Euro. “We’ve got 844 million people using Facebook on mobile, up 29% year over year,” he said on CNBC, with 700 million users on Messenger and 800 million on WhatsApp.
As Wehner spoke, the after-market price of the stock surged, to nearly $94.50. It was almost precisely the reverse of what happened with Twitter when it announced its earnings results yesterday, which saw a quick gain followed by a slow draining away as executives made their presentations to the financial media.
The bottom line is that the “F” in Fang caught some of its move in the months before earnings were announced, limiting its potential gains after the numbers came out. My guess is it will grind upward slowly from here, and while $100 Facebook may have to wait, it may not have to wait long.