Facebook, Inc. (Facebook) is trading up nearly 2% in Thursday’s premarket after beating estimates for Q4 2020 revenue and net income. The social media giant earned $3.88 a share in the quarter, $0.64 better than expectations, while revenue grew 33.2% year-over-year to $28.1 billion, beating consensus of 26, $4 billion. CEO Mark Zuckerberg reaffirmed 2021 spending and capital expenditure (capex) while expecting revenue to “stay flat or slightly accelerate sequentially in the first and second quarters.”
Key points to remember
- Facebook beat fourth-quarter earnings and revenue estimates.
- The political headwinds are finally dissipating, allowing fundamentals to control price action.
- Bilateral price action is likely in March, but the stock could break out later this year.
Daily active users (DAUs) grew 11% year-over-year to 1.84 billion, while Monthly active users (UAM) increased by 12% to reach 2.80 billion. The company just authorized an additional $25 billion in share buybacks, adding a tailwind as political headwinds recede following the transition to the Biden administration. The company also said it will no longer endorse civic or political groups and is working to reduce the amount of political content.
The push to repeal Section 230 liability protections for social media petered out when Donald Trump left office, still reeling from Facebook and Twitter, Inc. (TWTR) bans that cut off his main sources of communication with followers. Democrats are unlikely to push for reforms given these actions, paving the way for a period in which ad revenue drives price action rather than threats or intimidation. In turn, this could pave the way for new heights.
Wall Street’s consensus on Facebook’s stocks held firm through the election and violent aftermath, with a “Buy” rating based on 39 “Buy”, three “Overweight”, six “Hold” and one “Sell” recommendation. . Price targets currently range from a low of $205 to a high of $397, while the stock is expected to open Thursday’s session around $70 below the midpoint target of $345. This humble placement adds another tailwind that increases the chances of a sustained upside.
Point
Capital expenditure (capex) are funds used by a company to acquire, upgrade and maintain physical assets such as real estate, factories, buildings, technology or equipment. Capex is often used to undertake new projects or investments by a company. Making capital expenditures on fixed assets can include repairing a roof, purchasing equipment, or building a new factory. This type of financial expenditure is done by companies to increase reach or add economic benefit to their operations.
Facebook Weekly Chart (2012-2021)
TradingView.com
The stock went public in the $40s in 2012 and entered an uptrend 14 months later, stopping in the $70s in March 2014. The price action then eased. rising channel and traded within these limits until July 2018, when it reached $219 and broke through the channel Support, falling to a two-year low. A slow rise returned to the previous high in January 2020, leading to a quick rally, followed by a failed breakout and an 87-point decline in March.
A strong wave of recovery hit the Q1 high in May, triggering an immediate breakout, but momentum didn’t begin until August, when the stock took off in a vertical impulse that hit an all-time high at 304. $.67 a few weeks later. Price action since then has turned bearish descending triangle this suggests much lower prices, but that will change if the stock can rally above resistance at $290.
The weekly stochastic oscillator entered a buy cycle that predicts relative strength through March, but the monthly oscillator remains in an active sell cycle, with the conflict likely to generate bilateral price action. This makes sense, with price integrated around the middle of the five-month trading range. Despite the conflict, it seems the stars are slowly aligning for a breakout that rewards patient shareholders.
Point
A descending triangle is a bearish chart pattern used in technical analysis which is created by drawing a trend line which connects a series of lower highs and a second horizontal trend line which connects a series of lows. Often traders watch for movement below the lower support trendline as this suggests downward momentum is building and a breakout is imminent. Once the outage occurs, merchants come into short positions and aggressively help push the price of the asset even lower.
The essential
Facebook added a few points after posting exceptionally strong fourth-quarter earnings and revenue.
Disclosure: The author held no position in the aforementioned titles at the time of publication.
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