Facebook shares remain in a bull market supported by Q3 results

Facebook shares remain in a bull market supported by Q3 results
Written by:
Stanko Iliev
November 25, 2020
  • Facebook reported better-than-expected Q3 results
  • The digital advertising market will reach $626B by 2026
  • Analysts still see the valuation of Facebook at bubble levels

Facebook (NASDAQ: FB) shares extended its correction from the recent highs above $297, registered in the first week of November but the price of the stock is still near multi-year highs. Facebook reported better-than-expected Q3 results and the company expects that the Q4 ad revenue growth will be even higher.

Fundamental analysis: Facebook expects Q4 ad revenue growth rate to be higher than Q3’s rate

The business of Facebook is going well and according to market analysts, the digital advertising market will reach $626B by 2026. By 2023, digital advertising will probably account for two-thirds of whole advertising spending and it is important to say that the mobile segment could have 50% of the market share.

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Facebook reported better-than-expected Q3 results this October, total revenue has increased 21.6% Y/Y to $21.47B while Q3 GAAP EPS was $2.71( beats by $0.80). CEO Mark Zuckerberg said that the company had a strong quarter as people and businesses continue to rely on FB services to stay connected.

Daily and monthly active users have increased 12% Y/Y and the company expects Q4 ad revenue growth rate to be higher than Q3’s rate.

Federal investigators will bring soon antitrust charges against Facebook that are connected with the acquisition of Instagram and WhatsApp. Investigators said that these two acquisitions left users with few quality alternatives but Mark Zuckerberg said that fast-growing social apps (like TikTok) are evidence of a healthy, competitive social networking market.

“I don’t want to have a major lawsuit against our own government but if someone’s going to try to threaten something that existential, you go to the mat and you fight,” Zuckerberg said.

There are some obvious risks when it comes to trading Facebook shares and analysts still see the valuation of Facebook at bubble levels. With a $788 billion market capitalization, this stock is expensive and the current risk/reward ratio is not good for long-term investors.

Facebook shares have weakened below $270 this trading week but in my opinion, this is a still correction and as long the price of Facebook is above $240 this stock remains in a bull market.

Technical analysis: Facebook shares remain in a buy zone

Facebook shares have been moving in an uptrend since the beginning of April but the price is still not able to consolidate above the $300 resistance level. The current risk/reward ratio is not good for long-term investors but as long the price of Facebook is above $240 support this stock remains in a bull market.

Data source: tradingview.com

The important support levels are $260 and $240, $280 and $300 represent the resistance levels. If the price jumps above $280 it would be a signal to buy Facebook shares but if the price falls below $240 it would be a strong “sell” signal.

Summary

Facebook is a healthy and stable company but with a $788 billion market capitalization, this stock is expensive and the current risk/reward ratio is not good for long-term investors. Facebook reported better-than-expected Q3 results this October, total revenue has increased 21.6% Y/Y to $21.47B while Q3 GAAP EPS was $2.71. Facebook shares extended its correction from the recent highs above $297 but as long the price is above $240 support this stock remains in a bull market.