Facebook Inc. is scheduled to report its Q1 2017 earnings on May 3. Is FB Stock a good buy going into the upcoming earnings release?
Shares of Menlo Park, California-based social networking giant Facebook Inc. (NASDAQ:FB) have been in a solid uptrend and closed the last trading session at a price of $150.25 per share, the first time FB stock closed above the $150 mark. Facebook stock price is now up by more than 30% in the year to date, outperforming the 12.33% returns of the Nasdaq Composite (INDEX:COMPX) by a fair margin. The company is slated to announce its Q1 2017 earnings after the bell on Wednesday, May 3. Will the upcoming earnings report provide yet another trigger for the uptrend in FB stock price? Should you buy the stock ahead of the Facebook Inc. Q1 2017 earnings release.Facebook Q1 2017 Earnings Wall Street Estimate
Wall Street consensus expects Facebook to report Q1 earnings of $1.12 per share on a revenue of $7.83 billion. The current Wall Street consensus implies an impressive 45% YoY growth in earnings as well as revenue. The 45% topline/earnings growth is slower than the YoY growth the company has posted through the last 5 quarters. However, the slowing topline growth is only natural given the increasing revenue base at which Facebook is operating. To put things in perspective, the Q1 2017 topline estimate is more than 2x the $3.54B revenue Facebook reported in Q1 2015.
Also, the slower earnings growth is in line with the management commentary of margin compression as the company gets into an investment drive expected to last through FY 2017. On a more positive note, the analysts' earnings consensus has climbed steadily over the last 3 months, up by 5% over this period.Facebook Earnings History And Q1 Earnings Whisper
Facebook has a very strong history of trumping analyst estimates. Facebook has met/beaten analyst' earnings consensus in 18 out of 19 reported quarters since its IPO in 2012. On the revenue front as well, the company has beaten estimates in 18 quarters. Not many companies can boast of a similar earnings record. The recent earnings history has been much more impressive, with the Menlo Park-based company trumping analyst estimates in each of the last 4 quarters on revenue as well as earnings. The company has delivered an average earnings surprise of 14% over the last 4 quarters. Based on the recent as well as long-term earnings history, Facebook Inc. looks set to beat earnings estimates on May 3.
The theory for an earnings beat is also supported by the FB Q2 earnings whisper number. The current earnings whisper anticipates FB Q2 earnings of $1.21 per share, implying a 9 cent, or 8%, earnings surprise.Facebook Post-earnings Stock Price Movement
The FB stock price reaction to recent earnings reports has been mixed. In the immediate trading session following the earnings announcement, FB stock price gained on two out of the last 4 earnings announcement. The stock fell, by an average of 3.72%, following the last two earnings announcements. However, Facebook stock bounced back from any short term post-earnings corrections to go on to hit new all-time highs, and that's something investors will have to bear in mind. Any post-earnings corrections could present investors an opportunity to buy FB stock at lower price levels. In other words, an earnings driven correction could be a great buying opportunity in FB stock.Keep An Eye On Instagram
Investors should keep a close eye on any Instagram related news/numbers shared through the earnings release or over the earnings call. Instagram is expected to add $5.2B to Facebook's top line in FY 2017. However, as we had highlighted in our recent Instagram coverage, that could be a conservative estimate. Even the conservative estimate equates to a quarterly revenue of rate of $1 billion+, and hence, Instagram's rapid growth will have a greater impact on Facebook's overall growth. Therefore, investors should watch out for any details about the performance of Instagram.Conclusion
Facebook Inc. Q1 2017 earnings are scheduled for release on May 3, after the market close. The Menlo Park, California-based company is expected to report earnings of $1.12 per share on revenue of $7.83 billion. While Facebook's earnings track record and the FB Q2 earnings whisper indicate that an earnings beat is well on the cards, an earnings beat will not guarantee a bullish post-earnings movement in FB stock price. Investors should keep a close watch on any Instagram specific numbers as the photo-sharing platform could be the Facebook's growth engine in the coming quarters. In conclusion, Facebook could report yet another quarter of stellar growth. Long-term investors should continue to buy FB stock and use any post-earnings correction to accumulate more Facebook shares at lower price levels.
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