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Friday, October 11, 2013

$fb into earnings

As fb approaches earnings, here is an assessment. 

Facebook is a high-flyer that has to show a few things:

1. Revenue growth accelerates

2. Earnings grow into valuation

3. Key metrics suggesting the above two will take place

Over the past couple of years, during the September Quarter, Facebook had quarter-over-quarter grow of 7.5% (2010), 6.2% (2011) and 6.2% (2012).

High-flyers need to show accelerated revenues. This is what sparked fb recent rally. (As such, I'm not as concerned about an earnings miss.) 

Can fb produce revenue growth above last years 6.2%?

Analyst estimates are for revenue of $1,900. To produce a 6.2% growth rate from Q2 revenue needs to be $1,9250.

Few obvious scenarios to playout:

1. Beat analyst expectations, but don't show an acceleration of revenue. (Stock could see an initial pop, but i would expect a consolidation around $50.)

2. Beat expectations and show an acceleration. (Obviously the stock should keep rallying.)

3. Misses analysts expectations. (Depending on what key metrics are saying, assuming they are relatively positive, the stock may take a hit and see near $40. Or the 14sma on the weekly. As this sma has historically acted as resistance, it may act as support.)

Facebook has made great progress in their mobile ad model, but a lot was due to App Ads via mobile. Also, the PC ad pricing held as mobile ad placements accelerated. 

As mobile takes on more views, PC rates should decline and mobile rates rise. The transition could be a bumpy one. There could be a nice off-set as mobile ads become more than just App references, and Instagram ads enter the mix. But these things were not seen this quarter.

Not sure FB will produce an acceleration in revenue this quarter, but they may very well beat or meet expectations.

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