Facebook (FB) shares have gone on an impressive run over the past several weeks, rising more than 47% from $255 on March 8 to a recent 52-week high of $375. Not only has Facebook’s gains outperformed the S&P 500 index, it has significantly exceeded the broader technology sector. Can this momentum continue or is it time to lock in some profits?
The social media giant will report first quarter fiscal 2021 earnings results after the closing bell Wednesday. Despite constant headline risk toward and regulatory scrutiny, Facebook has been a model of consistency in terms of execution, topping consensus earnings expectations in each of the past thirteen quarters. What’s more, prior concerns about softness in the digital advertising market have now vanished, evidenced by the strong earnings results just released from Snap (SNAP).
For Facebook in particular, the company is also benefiting from a combination of factors. Aside from an improved ad-spending environment, there’s also an accelerated shift to digital by corporations who are looking to leverage the services that Facebook offers. In terms of engagement with products such as Messenger, Instagram and WhatsApp, Facebook continues to enjoy significant increases in usage. Driven by the company’s own initiatives to enable e-commerce services to users, some 2.7 billion people use one or more Facebook applications on a daily basis.
With more people across the globe spending more time online due to lockdown restrictions, Facebook’s advertising clients have had no choice but to increase their ad spending. As such, on Wednesday the market will want to know how much the increased engagement and usage has contributed to Facebook’s bottom line. While Facebook stock is not as cheap today as it were two months ago, the company’s leadership position in digital advertising continues to support the share price which is expected to outperform in the second half of the year.
For the three months that ended June, the Menlo Park, Calif.-based company is expected to earn $3.02 per share on revenue of $27.82 billion. This compares to the year-ago quarter when earnings came to $1.80 per share on revenue of $17.4 billion. For the full year, ending in December, earnings are projected to rise 30% year over year to $13.12 per share, while full-year revenue of $115.91 billion would rise 35% year over year.
Having recently reached a $1 trillion market cap, it’s notable that Facebook’s full-year revenue is projected to grow at 35%, an impressive acceleration from 2020. The growth stems from the strategic investments the company has made, particularly in e-commerce. In 2021, the company plans to deploy $20 billion in capital, adding more-than $4.3 billion than what it spend a year ago. Ramping up the e-commerce segment in response to the pandemic, Facebook Marketplace, Facebook Shops recently surpassed 1 million monthly active shops and 250 million monthly visitors.
That level of growth and engagement and timely investments continue to power both quarterly revenue and profits. In the first quarter, Facebook cruised by analysts’ estimates, posting an adjusted profit of $3.30 per share which rose 93% year over year, beating estimates by a whopping 96 cents, while Q1 revenue of $26.17 billion rose 47.55% year over year, beating estimates by $2.46 billion. On Wednesday I expect Facebook to report similar-to-better results, which should send the stock towards all-time highs.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.