Facebook, Inc. (NASDAQ:FB) reports quarterly earnings on July 24 after the market closes

Facebook, Inc. (NASDAQ:FB) reports quarterly earnings on July 24 after the market closes

Facebook, Inc. (NASDAQ:FB) reports quarterly earnings on July 24 after the market closes

When Facebook (NASDAQ: FB ) reports quarterly earnings on July 24 after the market closes, investors may not want to expect more upside. FB stock already staged a V-shaped recovery that began in May.

After bottoming at the 200-day simple moving average on June 1 at $160, investors may already have priced in the strong quarterly profit numbers. Facebook will need to report revenue accelerating higher than thought.

Facebook’s Revenue Acceleration

Trading recently above $200, Facebook could break-out above its ~$218 52-week high if revenue exceeds the $16.5 billion and EPS estimate of $1.90.

To get there, ad revenue from the News Feed on the Facebook site and ad impression sales on Instagram must grow. In the near-term, ad revenue may stall due to new rules around political advertising. The government has yet to update those regulations that counter election tampering from foreign nation states. Adoption of new regulations to protect consumer privacy may also hurt Facebook’s revenue in the quarter.

Facebook is also aiming to lower the number of ads shown on News Feed, promoting user-generated content over corporate advertising-driven pages. On Instagram, the company is still trying to figure out how to generate profit margins at levels that are comparable to ads sold on the Facebook News feed.

Despite the near-term challenges, Facebook started Q1 2019 with mobile ad revenue growing 30% to $13.9 billion. It benefited from growth across all regions. And its business is so broad that its top 100 advertisers account for under 20% of its total ad revenue.

With the benefit of a more diverse advertising base, Facebook stock is less risky for technology investors than last year.

Responding to Criticism

Facebook is increasing transparency in its work on elections to appease the U.S. government. It shored up defenses for the midterm elections and will do the same in other parts of the world. Ads are no longer just electoral ads but include all ads. Its users may search for and report bad ads without any difficulty.

Investors could expect higher investments in the near-term potentially hurting earnings. The company will increase its investments in tools that protect its platform from interference . This also benefits advertisers by helping them grow their business. Tools that help advertisers reach their target audience with greater frequency will bring in more business. And end-users benefit from receiving ads that are relevant to them. The more often they click the ads, the more Facebook gets paid and the happier advertisers are with their effective ads.

On the Instagram platform, Facebook introduced Interactive Stories Ads globally earlier this year. The company recognized the power of people and businesses using interactive features to start conversations on Stories. Advertisers may now use polling stickers to get noticed and to drive better results.

Facebook’s 2019 Outlook

Facebook forecast a deceleration in growth rates throughout this year. Headwinds related to ad targeting will have a greater impact on results in the second half of 2019. With such a negative outlook, investors who missed the entry point on FB stock at ~$160 may question the latest rally. The stock’s bounce may be due to speculation that the expense growth of 47%-55% year-on-year is higher than projected. If expenses come in closer to the prior guidance of 40%-50%, then the recent stock rebound is justified.

Even if earnings fall short of the lofty expectations, Facebook’s $17 billion-$19 billion capex forecast is still below the previous $18 billion-$20 billion range. Its commitment to focus on the core product, infrastructure, safety, security, and innovation will lift long-term operating margins. In effect, if earnings come in short of consensus later this month, investors could buy the stock to bet on long-term growth acceleration.

Overall, the bias in prices is: Upwards.

Note: this chart shows extraordinary price action to the upside.

By the way, prices are vulnerable to a correction towards 186.54.

The projected upper bound is: 211.61.

The projected lower bound is: 191.16.

The projected closing price is: 201.39.

Candlesticks

A black body occurred (because prices closed lower than they opened).
During the past 10 bars, there have been 7 white candles and 3 black candles for a net of 4 white candles. During the past 50 bars, there have been 30 white candles and 20 black candles for a net of 10 white candles.

Momentum Indicators

Momentum is a general term used to describe the speed at which prices move over a given time period. Generally, changes in momentum tend to lead to changes in prices. This expert shows the current values of four popular momentum indicators.

Stochastic Oscillator

One method of interpreting the Stochastic Oscillator is looking for overbought areas (above 80) and oversold areas (below 20). The Stochastic Oscillator is 88.3720. This is an overbought reading. However, a signal is not generated until the Oscillator crosses below 80 The last signal was a sell 15 period(s) ago.

Relative Strength Index (RSI)

The RSI shows overbought (above 70) and oversold (below 30) areas. The current value of the RSI is 67.99. This is not a topping or bottoming area. However, the RSI just crossed below 70 from a topping formation. This is a bearish sign. A buy or sell signal is generated when the RSI moves out of an overbought/oversold area. The last signal was a sell 0 period(s) ago.

Commodity Channel Index (CCI)

The CCI shows overbought (above 100) and oversold (below -100) areas. The current value of the CCI is 150.This is an overbought reading. However, a signal isn’t generated until the indicator crosses below 100. The last signal was a sell 3 period(s) ago.

MACD

The Moving Average Convergence/Divergence indicator (MACD) gives signals when it crosses its 9 period signal line. The last signal was a buy 20 period(s) ago.

Rex Takasugi – TD Profile

FACEBOOK INC A closed down -1.500 at 201.230. Volume was 22% below average (neutral) and Bollinger Bands were 6% wider than normal.

Open High Low Close Volume___
203.260 203.800 200.210 201.230 13,558,631

Technical Outlook
Short Term: Overbought
Intermediate Term: Bullish
Long Term: Bullish

Moving Averages: 10-period     50-period     200-period
Close: 196.30 186.00 163.75
Volatility: 18 36 42
Volume: 13,075,555 16,329,360 21,248,216

Short-term traders should pay closer attention to buy/sell arrows while intermediate/long-term traders should place greater emphasis on the Bullish or Bearish trend reflected in the lower ribbon.

Summary

FACEBOOK INC A is currently 22.9% above its 200-period moving average and is in an upward trend. Volatility is extremely low when compared to the average volatility over the last 10 periods. There is a good possibility that there will be an increase in volatility along with sharp price fluctuations in the near future. Our volume indicators reflect moderate flows of volume into FB.O (mildly bullish). Our trend forecasting oscillators are currently bullish on FB.O and have had this outlook for the last 14 periods.

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