Will Investors Hit the Like Button for Facebook?

What’s happening: Facebook is all set to report its first-quarter results after the closing bell on Wednesday, April 29.

What happened: The Menlo Park, California-based company’s financial performance is expected to be hurt by the decline in ad spend by companies amid the coronavirus outbreak. Facebook has high exposure to small- and medium-sized businesses, which are the hardest hit by the pandemic and resulting economic downturn.

Despite this, market sentiment has been positive for Facebook and the stock has gained 17% in the past month. Investors became a little cautious ahead of the results, sending the shares down 2.5% during the regular session yesterday. The mood changed quickly, and shares delivered a sharp rebound, rising 3.3% in after-hours trading.

Expectations for the quarter: Although Alphabet and Snap have warned of a meaningful slowdown in their ad revenues, their stocks gained due to generally strong quarterly results. Investors expect Facebook to follow suit and are looking at the stock rising after the social networking behemoth posts its quarterly results. Markets are also optimistic ahead of earnings release, with Facebook beating earnings estimates every quarter in the past two years.

• The consensus estimate for revenue stands at $17.25 billion, representing 14.4% growth over the same quarter last year.
• Earnings are expected to come in at $1.71 per share, a 9.5% decline versus the year-ago quarter.

Why it matters: The number of users and the time spent by them on social media have surged with widespread lockdowns. Users are also turning to Facebook as a source of the latest information on the COVID-19 outbreak. Amid the memes and shares, what’s missing now are the ads related to movies, sponsored posts by travel companies and small businesses selling their products.

With Facebook’s ad revenues accounting for a whopping 98.5% of its overall revenue, the decline in marketing budgets will severely impact the bottom line.

The company recently said that more people globally had started using its Messenger and WhatsApp services. Although these are not a source of income for the company yet, it’s building a larger userbase for these platforms and Facebook could soon find ways to monetise them.

Facebook recently announced its second-biggest acquisition after its $22 billion purchase of WhatsApp. The company acquired a 9.99% stake in India’s Jio Platforms for a price of $5.7 billion.

What to watch: Facebook is under pressure to continue its upbeat performance this quarter, despite the coronavirus outbreak. Investors will look out for more details of the company’s recent stake in India’s Jio Platforms and plans for extending its presence in this market.

US stocks will likely be in focus today, as investors await a flurry of major earnings reports.

Context: US stocks closed lower on Tuesday, after posting a strong rise earlier in the day. Technology sector took a major hit with investors growing cautious ahead of various earnings releases.

Details: Investors assessed recent earnings from various companies and were preparing for reports from some of the biggest companies. After the closing bell, Google parent Alphabet reported downbeat earnings for the latest quarter, although sales exceeded estimates. The company also disclosed a marked slowdown in advertisement sales during the quarter.

Investor sentiment improved on news of the US government’s recent moves to ease lockdown restrictions. Ohio and Pennsylvania reported loosening restrictions on economic activities.

On the other hand, economic data continued to signal the impact of coronavirus pandemic on the economy. The consumer confidence dipped to 86.9 in April, from 118.8 in March. The US trade deficit widened to $64.2 billion in March, from $59.9 billion in February, while the Case-Shiller home price index increased 4.2% for February.

After rising as much as 1.6% earlier in the session, the Dow fell 32.23 points to close at 24,101.55 on Tuesday. The S&P 500 declined 0.5%, while the Nasdaq 100 dipped 1.4%.

In earnings news, shares of 3M Co. rose 2.5% after the company reported upbeat results. However, Merck & Co’s shares slipped 3% even as the pharmaceutical giant reported upbeat results. The downturn was driven by the company slashing its 2020 guidance. United Parcel Service’s shares slipped 6% following weaker-than-expected profits in the first quarter.

In commodities, WTI (West Texas Intermediate) crude oil for June fell 3.4% to settle at $12.34 per barrel. Gold for June delivery slipped $1.60 to close at $1,722.20 an ounce on Tuesday.

What to watch: Markets will be looking for earnings reports from major companies, including Boeing, General Electric, Mastercard, Microsoft, Facebook and Tesla. US stocks are expected to start on a positive note today, with the stock futures pointing towards a higher open.

Investors also await the Federal Reserve’s interest rate decision and a few economic reports, including GDP growth and pending home sales. The US economy, which grew 2.1% in the fourth quarter, is expected to contract 4% in the first quarter. US pending home sales are expected to drop 10% in March, after a 2.4% rise in February.

Other Markets: Asian indices closed higher on Wednesday, with China’s Shanghai Composite, Hong Kong’s Hang Seng and India’s BSE Sensex up by 0.4%, 0.3% and 0.2%, respectively.

Germany’s inflation rate, Spain’s business confidence, Canada’s foreign stock investment as well as the US MBA mortgage applications and crude oil stocks change.