Why Facebook Must Beat on Earnings and Guidance

Facebook Inc. (NASDAQ: FB) is set to report its first-quarter earnings after the close of trading on Wednesday. The leader of social media is expected to post earnings of $0.40 per share (EPS) and revenue of $3.56 billion, according to Thomson Reuters consensus estimates.

24/7 Wall St. would warn readers that Facebook almost certainly cannot have a “meet and guide in-line” for earnings and revenues. As far as what to expect ahead, the Thomson Reuters consensus estimates are as follows:

  • Second quarter 2015: $0.47 EPS and $4.02 billion in revenue
  • Full year 2015: $1.97 EPS and $17.09 billion in revenue

Again, the stage has been set so that Facebook likely has to beat earnings expectations and also has to raise estimates. The $0.40 EPS estimate for the first quarter would compare to $0.34 EPS a year ago, while the official earnings estimate has not changed in the past 90 days. That being said, the estimate of $1.97 EPS for all of 2015 is now six cents (about 3%) higher than it was 90 days ago.

24/7 Wall St. has tracked the analyst calls and trends ahead of Facebook’s analyst report.

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Deutsche Bank is very bullish on the social media group, saying that Facebook has no true challenger and that the stock has been on fire. It likes the Instagram deal and video, as well as Graph Search capabilities and Dynamic Products Ads. The Deutsche Bank price target for the stock is $90, but what is interesting is that the target is below-consensus and the firm did not indicate any meaningful upside to earnings. So why bother having it in a report ahead of earnings?

Also this week came a report from Oppenheimer. The firm sees strong earnings from higher mobile engagement and strong monetization, but it also sees foreign exchange hurting first- and second-quarter revenues by 7% and 9%, respectively (versus 5% previously). Higher click-through rates and higher ad rates were also cited as drivers for strong earnings. Oppenheimer’s view is that the street estimates are conservative. The firm maintained an Outperform rating and has a $100 price target.

Last week, Cowen was very positive on Facebook as well. The firm thinks investor sentiment is very positive and that mobile advertising growth via different silos can be added in 2015, 2016 and beyond. Cowen’s price target for the stock is $91.

Earlier in April, Credit Suisse said that it thinks Wall Street models are conservative and do not account for additional revenue silos. The Credit Suisse price target for the stock is $104.

One last consideration here is that Facebook shares are up 7.2% year to date. The shares are also up 36.5% from this time last year.

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Facebook shares were trading right around $84.00 on Wednesday morning before the report. The social media giant’s 52-week range is $54.66 to $86.07, and the consensus analyst price target is $92.98. The highest analyst price target now is $107. Just keep in mind that Facebook’s market cap is $234 billion.