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Nicholas Kitonyi
Nicholas Kitonyi
Articles  | Author's Website |

Facebook: The Gift That Keeps on Giving

Shares are up 10% after another solid quarter

The first-quarter earnings season is about to enter its penultimate period, following this week’s earnings reports from 135 S&P 500 Index companies. Despite what analysts have refered to as a strong quarter for most companies, the U.S. top 500 benchmark index is down about 5% to 2,670 points from its March high of 2,780 points and down more than 8% from its all-time high of 2,870 points in January.

This week, Amazon.com Inc. (NASDAQ:AMZN) and Alphabet Inc. (NASDAQ:GOOG) (NASDAQ:GOOGL) reported solid results, while Microsoft Corp. (NASDAQ:MSFT) and Intel Corp. (NASDAQ:INTC) also beat analyst expectations when they reported quarterly results after the market closed on Thursday. The world’s largest public company in terms of market cap, Apple Inc. (NASDAQ:AAPL), will report its first-quarter 2018 results next week.

Yesterday, social media giant Facebook Inc. (NASDAQ:FB) blew analyst estimates out of the water,  growing its top line by 49%. The company’s operating profit also smashed estimates with 64% growth, while total costs and expenses were up 39%. This boosted its overall operating margin for the quarter to 46% from last year’s figure of approximately 41%.

The social network has been under intense pressure from media and regulation authorities around the world following its data breach disaster that triggered a massive plunge in the stock price last month.

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After a sustained period of a modest recovery, shares of the California-based company rallied 10% Thursday to trade at $175 per share from Wednesday’s close of $159, boosted by its impressive first-quarter 2018 results that saw daily active users rise 13% to 1.45 billion.

The company’s success story in mobile advertising continued with 91% of all advertising revenue coming from mobile ads. This unit had 85% revenue share in the same period last year. Another major improvement was the company’s cash and cash equivalents, which topped $43.96 billion.

The company appears to be in a very strong position in terms of liquidity, which explains why it increased its share repurchase program from $6 billion to $15 billion.

Shareholders will be delighted to see this, especially given recent turbulence in the stock price. Notably, looking at the company’s top and bottom lines, the backlash from the  Cambridge Analytica data breach had no impact on results.

Regardless, most of the negativity surrounding Cambridge Analytica, including the famous “#DeleteFacebook” hashtag that spurred even Tesla Inc. (TSLA) founder and CEO Elon Musk to join the campaign by deleting his personal and company accounts on Facebook, occurred during the latter part of the first quarter. As a result, we will have to wait for second-quarter results to get a clear picture of how the data breach affected the company.

In summary, Facebook's revenue and earnings beat maintained its record of outperformance. As the drums of war begin to quiet, a positive sentiment toward the stock seems to be finally returning to the market.

At the current price of about $175, shares of Facebook are still below its recent high of $193. Whether the current rally takes them back to that level is unknown, but, again, Facebook has shown that even amid a storm, it can continue to perform when everyone least expects it to. It is the gift that keeps on giving.

Disclosure: I have no positions in the stocks mentioned in this article.

About the author:

Nicholas Kitonyi
Nicholas the founder of CAGR Value. He is a financial analyst with extensive experience in investment research and stock market analysis. His analysis has been featured on research sites like Seeking Alpha and Benzinga.

Nicholas has solid knowledge of both U.S. and European markets. His investment style is focused on undervalued plays and growth stocks. As a trader, Nicholas classifies himself as a swing trader and likes to trade GBP/USD, gold and FTSE 100, among other liquid instruments.

Visit Nicholas Kitonyi's Website


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