Facebook Inc (FB) First Forecasted Earnings Decline: A Buying Opportunity

A number of analysts remain bullish on Facebook given the fact that the social network giant continues to achieve earnings growth. Over the past year, the company’s earnings increased more than 85%.

Facebook Inc (FB) First Forecasted Earnings Decline: A Buying Opportunity

Facebook Inc (NASDAQ:FB) is transforming itself into an advertising giant. Last month, the company announced that it has already more than 2 million active advertises on its platform. Its’ recently reported quarterly advertising revenue increased 53% to $3.59 billion year-over-year.

Market observers believed that Facebook will continue to grow. Currently, the company has a price-to-earnings ratio of 75. Data compiled by NASDAQ showed that the EPS consensus forecast for Facebook Inc (NASDAQ:FB) is $0.23 for the first quarter of 2015. That estimate is lower compared with its earnings of $0.34 in the same period last year. During the previous quarter, its earnings were $0.54 per share.

Tony Mitchell, a Marketocracy Master with 28% average annual return told Forbes that if the earnings of Facebook for the current quarter decline, it would create a buying opportunity. Mitchell emphasized that he feels strongly or bullish about Facebook and he believes that it is a Buy and Hold stock.

Facebook could reach $100 per share

Mitchell said Facebook will reach his price target of $100 per share sometime this year, which provides a return slightly north of 25% over the next 10 months. He added that Facebook “will provide an average return greater than 20% over the next 2-3 years!”

Mitchell explained his conviction by providing a screenshot of his Scottrade account to Forbes contributor Ken Kam.

Facebook Tony Mitchell Scottrade account

The columns with a “+” over them are the quarters were there was a positive earnings surprise. Note that Facebook has beat earnings expectations for the past 7 quarters, yet the stock has been stuck bouncing between $73 & $80 over the last six months,” said Mitchell.

Victor Anthony, an analyst at Axiom recently initiated a coverage on Facebook Inc (NASDAQ:FB) with a Buy rating and a price target of $105 per share. According to Anthony, “Facebook is the best way to play the secular shift of advertising dollars to mobile.”

Reasons why Facebook hasn’t reached target price

Mitchell cited several reasons why Facebook still hasn’t reached the $100 price target. Some of the reasons include:

  • A jittery market that is starting to get worried about valuation levels
  • The Alibaba’s IPO transferred capitalization dollars to it from various tech companies
  • Twitter’s recent run that attracted capitalization dollars to it from tech companies like Facebook
  • Investors are concerned about the increased in expenses, which was discussed by Facebook CEO Mark Zuckerberg over the past two quarters last year
  • Concerns regarding the forecast that Facebook could experience its first missed quarter. Take note that the consensus earnings estimate for the current quarter is lower than its earnings last quarter

 Facebook has great growth opportunity ahead

Mitchell emphasized that Facebook Inc (NASDAQ:FB) is doing the right things given the fact that the company beat expectation for seven consecutive quarters. The social network giant’s user base is also growing with average daily users of 890 million—three times more than the population of the United States.

He pointed out that Facebook Inc (NASDAQ:FB) has “so much growth in the future.”  According to him, Facebook is just starting is mobile video monetization, which has a great growth potential. Instagram has 300 million active users, more than Twitter has. Instagram recently received a $35 billion valuation. The company also has growth opportunities from its Messenger app and Oculus.

About the Author

Marie Cabural
Marie received her Bachelors Degree in Mass Communication from New Era University. She is a former news writer and program producer for Nation Broadcasting Corporation (NBC-DZAR 1026), a nationwide AM radio station. She was also involved in events management. Marie was also a former Young Ambassador of Goodwill during the 26th Ship for Southeast Asian Youth Program (SSEAYP). She loves to read, travel and take photographs. She considers gardening a therapy.