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By Brendan Gilmartin, VP Content & Research

Overview

Facebook (FB) is scheduled to report 1Q 2013 earnings after the close of trading on Wednesday, May 1. The actual results are expected to come through at approximately 4:05 p.m. EST with a conference call to follow at 5:00 p.m. This is Facebook's fourth earnings release since its IPO back in May 2012, and could have a direct impact on LinkedIn (LNKD) and online game-maker Zynga (ZNGA).

Outliers And Strategy

  • Facebook is expected to report Non-GAAP Earnings Per Share (EPS) of $0.13 per share for the 1Q 2013 period. Estimates range from $0.10 to $0.16. (Source: Yahoo Finance)
  • Revenues for the 1Q 2013 period are forecast to come in at $1.44 billion, the mid-point of analyst estimates of between $1.36 billion and $1.54 billion.
  • The options market is pricing in a 9% move off earnings when Facebook reports its results. Last quarter, the shares initially sold off after Non-GAAP EPS of $0.17 topped the consensus of $0.15, while revenue was 3.59% above estimates. Given the run-up in the shares ahead of the 4Q release, the knee-jerk move was lower. This time around, the shares are trading 14% below the January high and expectations have leveled off, leaving the door open for a potential upside surprise.

Recent News

  • 04/26: Raymond James upgraded Facebook to a Strong Buy rating ahead of 1Q results, according to a report on StreetInsider.com. The firm cited strength in advertising and valuation for the upgrade. The firm also set a $37 price target and sees 1Q EPS and revenues topping consensus forecasts at $0.13 and $1.47 billion, respectively.
  • 04/16: Pacific Crest believes revenues for Facebook are at risk, according to a post on StreetInsider.com. The report cited slower acceleration in ad revenues and monetization as the company focuses on product development.
  • 04/09: Oppenheimer cut its price target on Facebook to $32, according to Barron's online. The firm also reduced its EPS estimate from $0.15 to $0.14 due to the push toward mobile and lower prices for ads that appear on smartphones.
  • 04/04: Facebook introduced Home, an Android-compatible app to view and post content on Facebook. According to a post on Barron's online, Argus Research upgraded the shares from Hold to Buy with a $36 price target, following the introduction of Facebook Home and the decision not to be a hardware play in order to make a push into mobile. The firm also boosted 2013 and 2014 earnings estimates on Facebook in reaction to the introduction of Home.

Technical Review

Facebook shares are off about 14% from the highs established back in January, while the S&P 500 is nearing an all-time peak. While the shares have trailed the broader market advance, recent chart behavior suggests near-term stabilization and room for a potential move higher. On one hand, the Relative Strength Index is pointing higher ahead of earnings, while the shares managed to hold the 50-Day SMA over the few previous sessions. The MACD is also signaling a positive breakout, while Facebook has tested and held key support near $25.00 (near 200-Day SMA) on several recent occasions. (Chart courtesy of StockCharts.com)

Summary

Facebook shares are inching higher ahead of the 1Q 2013 earnings release amid optimism over ad spending, development of new products (including the Home app), modest valuation, and an expanding mobile presence. The knock against Facebook is its ability to scale in mobile, along with questions over its monetization plans, and decreasing subscriber growth. Against this backdrop, Facebook needs to deliver earnings and revenues toward the upper end of consensus views in order to assuage investor concerns over slower growth prospects.

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Source: Facebook Trading Higher Ahead Of 1Q 2013 Earnings Release