Facebook smashes analyst expectations for Q2/2020

August 07, 2020 14:00

In one of our last analytical articles on Facebook, we pointed out how an advertising boycott campaign from big companies like Verizon, Unilever, Starbucks, Coca-Cola, Honda, and spirits giant Diageo could result in a bearish acceleration in the stock from Facebook.

But last week, earnings for Q2/2020 were reported, and it seems as if the boycott campaign is a toothless tiger, as Facebook smashed expectations from Wall Street analysts and could be headed for a continued bull run.

11% revenue growth amid Corona slowdown and bad news coverage

While Facebook reported its slowest revenue growth since its 2012's initial public offering, analyst expectations with 17.31 billion USD were topped with Facebook reporting 18.69 billion USD in revenue.

Monthly active users were also up, with Facebook claiming 3.14 billion monthly users across its offered platforms, up from 2.99 billion monthly users in the previous quarter.

And with Earnings per Share (EPS) reported at $1.80 against an expected $1.39, it didn't come as a big surprise to see Facebook shares rise more than 6% already in extended trading hours.

Facebook CFO Wehner said the company expects its daily and monthly users to be slightly down in regions around the world where Corona restrictions are eased, but still, the company forecasts revenue growth for Q3/2020 to be around 10%, with taking into account headwinds like economic volatility, the ad boycott, and regulations around ad targeting.

In our opinion, it remains to be seen whether or not such strong revenue growth numbers are achievable, especially in regards to advertising.

Given the fact that current developments in the global economy, recession fears, and the negative impact on the revenue outlook for many companies for the months and probably years to come. Currently, due to the advertising situation on Facebook, this could result in broader marketing cost-cutting.

In addition to this, we'd also like to emphasize the long-term aspect again: if Facebook does not find a solution in regards to the moderation of hate and disinformation which leaves advertisers feeling like they have sponsored violent, bigoted content, or lies, the companies now boycotting and/or cutting their marketing expenses because of the Coronavirus pandemic could probably never return in the future.

How to trade Facebook Inc. CFD/#FB in this environment?

When looking at a daily chart, the overall picture stays bullish, even though with a neutral touch between 220.00 USD and 250.00 USD.

The recent break and push below 220.00 USD at the end of June can certainly be considered the first crack in the foundation.

In addition to this, the potential bearish divergence in the RSI(14) continues to point to diminishing bullish momentum.

While the overall mode in #FB stays bullish above the SMA(200), a break below 208.50 USD and below the SMA(200) would be clearly bearish and a drop below 200.00 USD would be very likely.

In fact, we consider the psychological mark around 200.00 USD only a stop-over could imagine a mid-term target in the second half of 2020 to be found around the current 2020 yearly lows around 140 USD.

On the other hand: given the recent run in US tech, the strong earnings not only from Facebook, but also from Apple or Amazon, further bullishness and a push to new all-time highs in Facebook shouldn't be ruled out.

That said, any anticipation of a break below 208.50 USD should include a stop above the current all-time high of around 255 USD, indicating that the stock is not yet ready for a deeper correction and sharper move down:

Source: Admiral Markets MT5 with MT5SE Add-on #FB chart (between May 8, 2019, to August 6, 2020). Accessed: August 6, 2020, at 07:20pm GMT - Please note: Past performance is not a reliable indicator of future results, or future performance.

In 2015, the value of #FB increased by 34.15%, in 2016, it increased by 9.93%, in 2017, it increased by 53.38%, in 2018, it dropped by 25.71%, in 2019, it increased by 56.57%, meaning that after five years, it was up by 160.1%.

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