While I think digital advertising in general will continue to exceed the expectations of bears, I think Facebook (NASDAQ:FB) still has multiple negative catalysts at the enterprise level. Therefore, I recommend that investors avoid FB stocks before the company’s first quarter results to be released after the market closes.
On April 21, Facebook’s rival, Break (NYSE:BREAK), the owner of the social media website Snapchat reported earnings per share in line with analysts’ average estimates. But the company’s revenues have exceeded average prospects, and its overall first quarter results are likely far above the expectations of the bears.
In addition, Snap’s user base jumped 20% year-over-year in the last quarter and its revenues jumped 25% yoy in March. Even in the first weeks of April, sales increased 15% year-over-year. Snap stocks jumped almost 40% on earnings.
Likewise, Roku (NASDAQ:ROKU), the title surged after the operator of the streaming television platform announced its preliminary results for the first quarter on April 13. Its active accounts jumped 3 million in the first quarter and its streaming hours increased 49% year-on-year.
As I wrote in an April 17 column on Roku, “the company increased its forecasted revenue range for the first quarter to between $ 307 million and $ 317 million, from its previous forecast of $ 300 million to $ 310 million. millions of dollars”.
In my March 27 article on Roku, I predict that the number of viewers will increase considerably. I added that concerns about advertising revenues were exaggerated because certain sectors of the economy, such as supermarkets, were “booming”.
Better investments than FB shares
Other companies that are doing very well include: Amazon (NASDAQ:AMZN), Domino’s (NYSE:DPZ), Netflix (NASDAQ:NFLX), eBay (NASDAQ:EBAY), Walmart (NYSE:WMT), auto insurance companies and video game manufacturers such as Activision (NASDAQ:ATVI) and Take two (NASDAQ:TTWO).
One factor that could help these companies is the fact that most of the country’s highest earners have not lost their jobs. Indeed, multiple sectors – including technology, finance, healthcare and government – that tend to pay their employees the most have not been severely affected by the coronavirus crisis and the recession.
Finally, as Investor’s Business Daily recently pointed out, “companies [still] want to put their brand identity in front of consumers. I think it’s because they want to make sure consumers remember to resume buying their products and services after the lockout ends. For example, I saw advertisements on Roku for Las Vegas casinos and used car retailers.
Pre-crisis problems and Facebook
Despite these positive catalysts, on March 24, Facebook warned on its blog that “our business is negatively affected like so many others in the world. “
The company said it does not generate revenue from parts of its websites, including Messenger, which generated huge increases in traffic during the pandemic.
But I think a negative catalyst that I discussed in depth before the crisis probably weighs a lot more on Facebook’s results than its inability to monetize some of its assets. Specifically, I noted that Facebook had indicated that its results would be compromised by Google’s decision to “make it more difficult for other websites, including Facebook, to track the browsing history of consumers via cookies” .
Meanwhile, Facebook’s need to continue spending a lot of money to protect the privacy of its users is likely to continue to weigh on the bottom line.
On a positive note, Facebook announced on April 24 that it would launch a video conferencing product that will support groups of up to 50 people. Given Zoom (NASDAQ:ZM) well-known security concerns, Facebook’s competing product could easily attract many users and advertisers.
In addition, when Facebook releases its results today, it could announce that the product has already attracted millions of users. This news could excite investors.
The bottom line on FB Stock
Results from Snap and Roku show that digital ad revenue isn’t dropping significantly.
But Facebook will continue to be affected by increased security spending and the change in Google rules. Meanwhile, the FB share is down only about 15% from its mid-February levels. As a result, I would recommend avoiding stocks and buying Roku and / or Snap instead.
At the time of this writing, Larry Ramer held shares in Roku. Larry Ramer has been researching and writing articles on American stocks for 13 years. He was employed by The Fly and Israel’s largest business newspaper, Globes. Larry started writing reviews for InvestorPlace in 2015. Among his very successful contrarian choices are GE, solar stocks and Snap. You can reach him on StockTwits at @larryramer.