Facebook, Inc. (NASDAQ:FB) Upside Potential

Facebook, Inc. (NASDAQ:FB) Upside Potential

Facebook, Inc. (NASDAQ:FB) Upside Potential

How an improved Instragam could be Facebook’s savior.

“Facebook doesn’t offer up a great deal of detail about where its revenue comes from,” Brumley wrote Oct. 15. “KeyBanc Capital Markets analyst Andy Hargreaves offered up some estimates, however, and believes roughly 15%, or $2 billion of the previous quarter’s $13 billion worth of advertising revenue was supplied directly by Instagram.”

If you extrapolate the 15% contribution to advertising revenue over all of 2017, Instagram generated approximately $6 billion to Facebook’s top line out of $40.7 billion.

He goes on to suggest that Instagram’s ad revenue in the second quarter grew 177% compared to no growth for legacy Facebook. According to Brumley, it’s possible that Instagram could account for 33% of the company’s overall ad revenue by 2020.

So, even if Facebook’s legacy business doesn’t grow ad revenues, it could still have $60 billion in overall revenue by the end of 2020, a growth rate of 22.5% annually.

There’s nothing terrible about that.

However, that doesn’t begin to address the potential FCF growth Instagram has over the next few years.

If Instagram’s ad revenues continue to grow by more than 100% annually over the next few years, FCF will most certainly balloon to at least $24 billion … likely more.

Facebook stock currently trades at 26 times its 2017 FCF. At the end of July, FB stock was trading at 36 times FCF. If its share price were to go sideways for the next two years, it would sell at 19 times FCF.

Assuming it can sort out its privacy issues, and that’s questionable, a multiple of fewer than 20 times FCF for a company that converts more than 40 cents of every dollar of revenue into free cash, is some nuts.

Overall, the bias in prices is: Downwards.

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

By the way, prices are vulnerable to a correction towards 170.01.

The projected upper bound is: 166.38.

The projected lower bound is: 151.48.

The projected closing price is: 158.93.

Candlesticks

A black body occurred (because prices closed lower than they opened).
During the past 10 bars, there have been 5 white candles and 5 black candles. During the past 50 bars, there have been 24 white candles and 26 black candles for a net of 2 black candles.

A spinning top occurred (a spinning top is a candle with a small real body). Spinning tops identify a session in which there is little price action (as defined by the difference between the open and the close). During a rally or near new highs, a spinning top can be a sign that prices are losing momentum and the bulls may be in trouble.

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 73.3212. This is not an overbought or oversold reading. The last signal was a buy 6 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 46.72. This is not a topping or bottoming area. A buy or sell signal is generated when the RSI moves out of an overbought/oversold area. The last signal was a buy 27 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 26. This is not a topping or bottoming area. The last signal was a buy 2 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 0 period(s) ago.

Rex Takasugi – TD Profile

FACEBOOK INC A closed up 0.640 at 159.420. Volume was 31% below average (neutral) and Bollinger Bands were 26% narrower than normal.

Open High Low Close Volume___
159.560 160.490 157.950 159.420 17,592,004

Technical Outlook
Short Term: Neutral
Intermediate Term: Bearish
Long Term: Bearish

Moving Averages: 10-period 50-period 200-period
Close: 156.15 167.12 178.93
Volatility: 37 29 45
Volume: 23,782,202 23,970,712 27,777,588

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 10.9% below its 200-period moving average and is in an downward trend. Volatility is extremely high when compared to the average volatility over the last 10 periods. There is a good possibility that volatility will decrease and prices will stabilize in the near term. Our volume indicators reflect moderate flows of volume out of FB.O (mildly bearish). Our trend forecasting oscillators are currently bearish on FB.O and have had this outlook for the last 18 periods. Our momentum oscillator has set a new 14-period high while the security price has not. This is a bullish divergence.

The following two tabs change content below.
HEFFX has become one of Asia’s leading financial services companies with interests in Publishing, Private Equity, Capital Markets, Mining, Retail, Transport and Agriculture that span every continent of the world. Our clearing partners have unprecedented experience in Equities, Options, Forex and Commodities brokering, banking, physical metals dealing, floor brokering and trading.

You must be logged in to post comments :  
CONNECT WITH