Facebook releases Q1 earnings next week, Fiona Cincotta breaks it down.
Facebook (FB) releases its first quarter earnings report on April 29, after market close. Its Q1 expectations are for revenue of $17.82 billion with a $1.18 earnings per share.
Facebook is both benefiting and being battered by the Coronavirus pandemic. On the one hand Facebook is expected to report a surge in engagement levels on many of its services. Usually an increase in active users goes hand in hand with a rise in advertising revenue.
However, its ad revenue is expected to take a big hit. This is important because ad revenue accounts for nearly all of Facebook’s total revenue. In lock down many firms are cutting costs and ad spending is being slashed. Year-over-year ad revenue figures will help gauge the degree that ad spend is taking a hit.
In Q4 Facebook revenue increased 25% year-over-year. Even before the Coronavirus outbreak Facebook had said that they expected a deceleration in Q1 year-over-year revenue growth to around 20%, a drop of 24%. This is now out of date and analysts’ expectations are for revenue growth of 16.9%.
Does Snap’s performance bode well for Facebook?
However, it is worth considering that Snap Inc. (SNAP)— which reported earlier this week and whose dominant revenue stream is also advertising — reported better results than expected. A 44% jump in revenue was well received by the market and sent the stocks soaring 27% and Facebook piggy backed the rally 6% higher. That said, on the earnings call Snap confirmed that “many advertising budgets declined due to covid-19”, which suggests that the jump in revenue was owing to a strong start to the year. Which doesn’t necessarily bode well for Facebook.
Q2
Given that lock down only kicked off in the last few weeks of March, the biggest hit to ad spend is likely to come in Q2. Meaning forward guidance will be key. Analysts have predicted that Facebook’s revenue could rise just 5.8% next year as the company’s struggle to recover from the Covid-19 crisis. Will Facebook be more optimistic? Or will they decline to comment given the lack of visibility?
Chart thoughts
After setting a 52-week low on March 18, the stock has gained 30% in less than a month (see chart below). The trend is clearly bullish with the path of least resistance pointing higher.
Immediate resistance can be seen at $184.60, Wednesday’s high, followed by $196, the March 3 high. Immediate support can be seen at $180.50 and the April 21 low of $168.38.
Fiona Cincotta is a Market Analyst for Currency Live
