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Facebook Q1 Earnings: It’s All About Ads

When: April 29 after market close

Q1 Expectations:

Revenue $17.82 billion

EPS $1.18

Facebook is both benefiting and being battered by coronavirus. On the one hand, Facebook (NASDAQ:FB) is expected to report a surge in engagement levels on many of its services. Usually, an increase in active users goes hand in hand with a rise in advertising revenue.

However, its ad revenue is expected to take a big hit. This is important because ad revenue accounts for nearly all of Facebook’s total revenue. In lockdown many firms are cutting costs and ad spending is being slashed. Year-over-year ad revenue figures will help gauge the degree that ad spend is taking a hit.

In Q4, Facebook revenue increased 25% yoy. Even before the coronavirus outbreak Facebook said it expected a deceleration in Q1 yoy revenue growth to around 20%-24%. This is now out of date and analysts’ expectations are for revenue growth of 16.9%.

Does Snap’s Performance Bode Well For Facebook?

However, it is worth considering that Snap, which reported earlier this week and whose dominant revenue stream is also advertising, reported better results than expected. A 44% jump in revenue was well received by the market and sent the stocks soaring 27%. Facebook piggy-backed on that rally, moving 6% higher. That said, on the earnings call Snap confirmed that “many advertising budgets declined due to COVID-19,” which suggests that the jump in revenue was owing to a strong start to the year, which doesn’t necessarily bode well for Facebook.

Q2

Given that lockdown only kicked off in the last few weeks of March, the biggest hit to ad spend is likely to come in Q2. Meaning forward guidance will be key. Analysts have predicted that Facebook’s revenue could rise just 5.8% next year as companies struggle to recover from the COVID-19 crisis. Will Facebook be more optimistic? Or, will it decline to comment given the lack of visibility?

Chart Thoughts

After touching a 52-week low on March 18 of $137.1, stock has gained 30% in less than a month. The trend is clearly bullish with the path of least resistance pointing higher.

Immediate resistance can be seen at 184.60 (yesterday’s high) followed by 196.00 (high on March 3).

Immediate support can be seen at 180.50 (trend line) prior to 168.38 (low April 21).

Facebook Q1 Earnings: It’s All About Ads

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