Instrument: Facebook (FB)
Last Closing: 170.28 USD
52 Week range: 154.34 – 224.20
Market Cap: 480.375 Billion USD
Revenue: 70.70 Billion USD (2019)
Facebook, Inc. is an online social network company worldwide. The company was founded in 2004 with its headquarter located in California, United States. The company’s prime activity is to develop social media applications and platform for people to connect using mobile devices and personal computers.
Facebook has adopted the strategy to grow earnings through diversification. In 2012 Facebook acquired another social media platform Instagram, which is largely used for sharing photos, videos, and private messages.
In 2014, Facebook also acquired WhatsApp for $19 billion. WhatsApp, a messaging app used worldwide for securely exchanging text and voice messages. WhatsApp’s additional features include photo and document sharing and video calls.
In the same year, Facebook attempted to expand to a different sector by purchasing Oculus VR for $2.3 billion. Oculus is known for its virtual reality technology. The other small acquisitions made by Facebook are LiveRail and FriendFeed.
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Financial Data (Fiscal Year 2019)
|Profit Margin||Operating Margin||Revenue||Revenue per Share||Quarterly Revenue Growth||Avg Vol (3 month)||Avg Vol (last 10 days)|
Facebook Annual Revenue from 2008 to 2019 (Millions of US Dollar)
An interesting thing that needs to be noted is although Facebook’s annual revenue is increasing in terms of percentages, the annual revenue is declining. Let’s focus on the revenue percentage while comparing it to the previous years. In the year 2017, the revenue increased by 47.09% compared to the year 2016. While In the year 2018 the revenue increased by 37.35% compared to revenue in 2018 and in the year 2019 the revenue increased by only 26.61% compared to 2018.
This pattern shows that despite the increase in revenue the company is facing stagnant growth. The continuation of this trend may put pressure on the stock price in the future.
Another significant development in the last quarterly report is the massive increase in operating cost which rose to 51.6% or $46.71 billion for the year. Following the Q4 earnings reports, FB slid more than 6 percent.
On top of stagnant user growth at 2.5 billion, the rise in operating cost and expense signals an alarming trend for Facebook. Analysts believe that this is mainly attributed to the company’s attempt to expand into different sectors and ventures. Another reason for the increase is in operating costs also relates to the billions of dollars fine in anti-trust investigations. This has also resulted in a decline in operating margin from 45% in 2018 to 34% in 2019.
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FB Stock Analysis
On January, 29 after the Q4 earning reports the FB fell from 224 to as low as 205 before finally closing at $209. For the next two weeks, the share price remained between 205 and 220 before entering into a bearish channel. As of 13 March 2020 the share price has fallen to $170 which is $54 decline since the Q4 earnings report. However, much of the recent decline is also associated with Coronavirus that is affecting the global economies.
Now the key question is whether FB stock will continue to drop or enter into a consolidation period before rebounding. Taking the fundamentals into consideration, the effects of coronavirus have now moved to Europe and America, with WHO declaring Europe the new center of the pandemic. The factories are shut down, the retail sector is under pressure, and the air industry is on standstill. This brings economic activities to the lowest and due to the low economic activities, the businesses are less likely to advertise. With all that happening FB is likely to feel the heat as it depends on the advertisement to generate revenue.
Now considering the grim technical side of FB, which shows the share price is already on the lower side due to the increase of operating cost in the Q4 earning and stagnant user growth. The share value is likely to remain under pressure and may slide down further to $160.
Last Closing: 170.28
Resistance 1: 183 – Resistance 2: 194 – Resistance 3 – 212
Support 1: 165 – Support 2: 153 – Support 3: 144
In the recent decline, $165 serves as a significant support level. A future closing blow $165 will send the price down below to relatively stronger support of $153. Any breach below $153 triggers an even bigger decline to $144.
On the upside, $183 may act as a first resistance level. Breaching above $183 would soar the price towards $194. However, in the aftermath of Coronavirus, a quick recovery above $200 is less likely. A solid development over the containment of the outbreak would be considered as a positive sign of price recovery towards 2012.
To a draw, a broader range in the current market scenario $144 and $212 are the important levels. For a narrowed-down range $153 and $183 ideal. Short term trades can be placed within these levels.
In the short term, traders may opt to buy near $165 with a stop loss at below $153 with a target price of $180. Traders may also opt to open a short position near $183 with stop loss above $194 and a short term target price of $173.
Trading on a broader range for a medium-term would be between $144 to $212, a buying opportunity would be ideal near $144 with a few weeks’ targets of $190. However, a breach below needs to be considered as a warning of further drop and a position may remain open for a longer period.