Article / 30 October 2015 at 11:40 GMT

Earnings Watch: Facebook reigns supreme

Head of Equity Strategy / Saxo Bank
Denmark
  • Strong revenue and EPS growth forecast for Facebook
  • Bullish outlook possible on Instagram roll-outs
  • Oculus Rift virtual reality may be a powerful earner
Oculus
The future is here (nearly). Meet Oculus Rift, the Facebook-owned head-mounted display 
for immersive technology virtual reality . Photo: www.Oculus.com

By Peter Garnry

With almost half of the companies in the 1200 Global Index having reported Q3 earnings we are entering the late stage of the earnings season with less impact on broad equity indices. However, next week will still speed ahead with 215 new earnings releases and non-US companies getting into the game.

Focus on engagement, ad growth, Instagram and Oculus

Facebook reports Q3 earnings on Wednesday after the market close with analysts expecting EPS $0.52 up 21% y/y and revenue $4.4bn up 36% y/y. Our view is that Facebook could easily surprise to the upside on both revenue and EPS as the company takes market share in online advertising (display and video) driven by high engagement. Facebook still has around 22% of all US mobile consumption excluding Instagram and WhatsApp.

As the chart below shows, Facebook's share price has been rising steadily since the bottom in 2012, reaching an all-time-high this week and outperforming its industry group. 

Facebook weekly share price since IPO in 2012
Facebook share price
Source: Saxo Bank 

Investors will be focusing on Facebook's outlook for Q4 and new product roll-outs such as Instagram self-serve and Instagram's international expansion. Everyone is also waiting for the first numbers of the Oculus virtual reality gadget which may reach around 0.5 million units.

With Facebook valued at 2016E EV/EBITDA of 19.5x it is to the high side, but given the margin expansion, sticky business model, high growth and international expansion on top of new interesting product roll-outs we believe investors should still be overweight Facebook.

Other important companies reporting next week...

Monday: HSBC, Ryanair, Nissan Motor, Visa, AIG, Estee Lauder

Tuesday: Itau Unibanco, UBS, BMW, Coloplast (Global Alpha Pick*), Intesa Sanpaolo

Wednesday: Softbank, Honda Motor, ING Groep, Swedish Match, Facebook, Allergan, Qualcomm, Time Warner

Thursday: Zurich Insurance, Deutsche Telekom, adidas, Vestas Wind Systems, Sampo, Societe Generale, Credit Agricole, AstraZeneca, Toyota Motor, Walt Disney, Celgene, Kraft Heinz, Duke Energy, Monster Beverage

Friday: Allianz, Maersk, Telefonica, Berkshire Hathaway, Cigna, Humana

All of next week's earnings releases can be found in the attached PDF.

* Based on our Global Alpha model on global equities

– Edited by Clare MacCarthy

 

Peter Garnry is head of equity strategy at Saxo Bank

Download document

Earnings Watch - 2015-11-02

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