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Facebook Q2 2019 earnings: Analysts bullish on company ahead of results

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Facebook is about to get hit with a record-breaking $5 billion fine, but Wall Street isn’t going to let that spoil its love for the social networking company.

On Wednesday, Facebook announces its financial results for the second quarter of 2019 — and by and large the market is bullish about its prospects, with one analyst labelling its stock “too cheap to keep ignoring.”

The broadly positive sentiment from analysts highlights how Facebook’s two years of constant scandals have done little to affect the company’s meteoric growth and power, even as it is implicated in everything from the spread of hate speech that fueled genocide in Myanmar to numerous privacy lapses.

In a note to investors published last week, analysts at Jefferies said that the company “arguably has the best sentiment” of any of the big tech firms right now — pointing to the fact that its share price has climbed 54% over the year to date, and as of Tuesday’s close of market sits at $202.36. (They predict it will climb to up to $250.)

Barclays analysts are also stoked about the company’s potential, suggesting that its scandals might be largely in the rear-view mirror. “As the conversation moves away from putting out privacy fires and back toward innovation, we think FB shares can continue to move higher,” they wrote.

Wall Street is expecting Facebook to post Q2 revenues of around $16.49 billion, up 25% year-over-year, according to consensus estimates compiled by Bloomberg, with earnings per share (GAAP) of $1.88.

Bank of America Merrill Lynch also has an optimistic outlook (and a price target for the stock of $224). It thinks the “biggest risk” is currently “cautious commentary on [second-half of the year] revenue growth on increasing consumer privacy tools adoption, usage shifts to stories, and other changes.” But there are a bunch of “green shoots” for the company that are worth paying attention to, its analyst write, including the potential for Instagram Checkout and Explore, the launch of cryptocurrency Libra, and growth of Facebook’s various video products.

Until there is significant evidence that users are abandoning Facebook over its scandals — something that has yet to happen — the company’s business is safe, Macquarie’s analysts argued: “We expect that despite horrific headlines for almost two years, usage trends remain strong. FB’s user metrics (whether on Facebook or Instagram) are still key for the health of the overall ecosystem, As long as users continue to find value in FB platforms, as demonstrated by the fact that FB has 2.7b MAUs and 2.1b DAUs, we think advertisers will continue to show up. Until we see users leave, we think FB will execute with appropriate and evolving business tools and models.”

Facebook is also facing a $5 billion FTC settlement over privacy issues, which is expected to be announced in the coming days. This has already been priced in; the company announced last quarter that it had set aside $3 billion in anticipation for it.

It’s a record-breaking fine for a tech company, but still pales in comparison compared to Facebook’s quarterly revenues, and investors aren’t worried about its impact on the firm. In fact, after it announced its expectations for the fine in Q1, Facebook’s stock leapt by as much as 8% in after-hours trading.

However, other regulatory threats are now looming on the horizon.

On Tuesday, the US Department of Justice announced that it was launching an antitrust probe into “whether and how market-leading online platforms have achieved market power and are engaging in practices that have reduced competition, stifled innovation or otherwise harmed consumers.”

The DOJ did not specify which companies its investigation is focusing on, but share prices of Facebook, Apple, Amazon, and Google parent company Alphabet all fell about 1% (the stocks later recovered) in after-hours trading when the news came out.


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