Although the long term story remains strong as ever, Q1 results might come as a surprise to most
Facebook (NASDAQ:FB) investors are expecting flying colors as Q1 results approach. However, contrary to the general perception, Ross Sandles, analyst at Deutsche Bank, has warned investors and stakeholders to tread carefully ahead of Q1 earnings call. He advises investors to position themselves for upcoming weakness as Mr. Sandler’s model points towards a humble Q1 earnings profile.
The analyst remains a believer in FB stock over the long term and advises that investors should buy on weakness following Q1 results as the stock is likely to trade in sympathy following below par earnings. He added that Facebook has now become a stock that everyone expects more from and has contributed to heavily positive sentiments coupled with skyrocketing quarterly revenue expectations. Given the recent channel checks, Deutsche Bank expects unfavorable results followed by overreaction.
The analyst traced back the sources of his skepticism regarding Q1 revenue to Q4s growth being an extrapolation (out of ordinary) in an otherwise stable growth function. The $5.06 billion estimate at Deutsche Bank suggests a 53% yearly growth in advertisement revenue which is slightly below estimate. However, the analyst sees a potential downside risk to this estimate as the trends are likely to come down in normal ranges. Most expectations at the moment are based on Q4s extraordinary numbers which are highly unlikely to come true.
Channels checks revealed mix data with strength in travel and weakness in some channels including, retail and agency. Experimental Direct response advertisement campaigns at Instagram are positive but not enough to impact overall growth. The analyst expects Facebook EPS to come in at $0.62 with EBITDA of $3.17 billion given the OPEX guidance and flat margins expectation. The analyst sees Q1 as slightly weaker than other quarters but the long term dynamism remains strong.
The analyst opinion on Facebook stock has 18 strong Buy, 29 Buy, three Hold and one Underperform rating. The stock is currently traded at $114.68 in the final hour of premarket session.