Facebook Stuck in Neutral Ahead of Earnings

Facebook Inc. (FB) reports Q4 2020 earnings after Wednesday’s U.S. closing bell, with Wall Street analysts looking for a profit of $3.20 per-share on $26.4 billion in revenue. If met, earnings-per-share (EPS) will mark a 25% profit increase compared to the same quarter in 2020. The stock fell more than 6% despite beating Q3 top and bottom line estimates in October but has carved little upside or downside since that time.

Ad Revenue vs. Political Headwinds

The stock topped out above 300 in August and eased into a trading range, with support below 250. Heavy criticism by the former president weighed on fourth quarter sentiment, with CEO Zuckerberg accused of bias against conservative opinions. The climax reached a boiling point after the insurrection, with Facebook and other social media outlets banning Donald Trump for inciting violence.  Even so, ad revenue is likely to be the final arbiter of 2021 price action.

Credit Suisse analyst Stephen Juour lowered his target to $325 last week, noting “advertiser checks are indicating better-than-expected ad budget growth for both Facebook and Instagram, and we raise our FX neutral revenue growth estimates for 4Q20, which now stand at 26% vs. prior 24%. We have anticipated a slower start to 2021 and have modestly lowered our growth expectations for 2021 to 26% vs. our prior 27%. We maintain our ‘Outperform’ rating”.

Wall Street and Technical Outlook

Wall Street consensus hasn’t budged in the last quarter, with a ‘Buy’ rating based upon 39 ‘Buy’, 3 ‘Overweight’, 6 ‘Hold’, and 1 ‘Sell’ recommendation. Price targets currently range from a low of $205 to a Street-high $397 while the stock opened Tuesday’s U.S. session more than $50 below the median $330 target. Diminishing political headwinds have impacted this humble placement, raising odds for higher prices in reaction to strong quarterly metrics.

Facebook topped out at 219 in 2018 and sold off after a privacy scandal, dropping to a two-year low at year’s end. The stock completed a round trip into the prior high in January 2020 and broke out in May, lifting into August’s all-time high at 304.67. Price action since that time has carved a trading range that now looks like a bearish descending triangle top. However, price structure also looks incomplete, suggesting it will be months before confirmed breakout or breakdown.

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Disclosure: the author held no positions in aforementioned securities at the time of publication.