Why Facebook Has to Blow Away Its Earnings Numbers

The social media giant’s Thomson Reuters consensus estimates are $0.24 in operating earnings per share (versus $0.24 a year ago and $0.31 in the fourth quarter of 2013). Revenues are expected to total $2.36 billion, up from $1.46 billion a year ago and versus $2.586 billion in the fourth quarter of 2013.

To prove just how high expectations are, WhisperNumber.com sent us a whisper number at $0.30 in earnings per share, with a “whisper range” of $0.26 to $0.34. In short, everyone outside of the analysts is expecting a much stronger report than what the consensus numbers.

Keep in mind that Credit Suisse came out with a key upgrade just on Tuesday ahead of the Facebook report. The firm raised its rating to Outperform from Neutral, saying that it is now time to rebuild your Facebook models. Earnings estimates were raised, and the price target was lifted to $87 from $65 in the call, just $3 shy of the street’s highest price target of $90. Credit Suisse’s investment case included the following comments:

Our point of differentiation with this report is in the explicit product-by-product deep dive and projections for existing desktop and mobile products, as well as the upcoming Premium Video ad unit and Graph Search versus the simplistic ARPU growth assumption. This analysis leads us to conclude the following key motivators for our ratings change: 1) Facebook will be able to drive revenue growth without a material lift in ad loads, 2) Street models are too conservative and underestimate the long-term monetization potential of upcoming new products, 3) optionality and upward bias to estimates do not contemplate contributions from multiple other products (Offers, 3P mobile ad network, etc.).

Another consideration is that Facebook put options went ballistic earlier this week. The January 2015 $45 puts saw more than 30,000 contracts trade, a fully leveraged bet for the equivalent of some 3 million shares. This was almost certainly a hedging transaction of sorts, and we have deeper analysis of the put options transaction from live data based on Monday’s closing bell.

Investors will be keen to see just how all the uber-expensive buyouts are going. Will mark Zuckerberg keep adding apps, companies and systems to the portfolio? If so, how much more is he willing to spend?

So, what about Facebook’s stock action? Wednesday’s early action had shares down 1% at $62.40 ahead of earnings. This still has the social media stock up 14% year to date, but the stock’s 52-week range is $22.67 to $72.59. The consensus price target from analysts is currently $74.61, and the median target is actually a tad higher at $75.00.

Facebook’s stock chart shows a bit of a dilemma. Trading at $62.40, its 50-day moving average is up above at $65.07, and $65 was the last key pivot point. The 200-day moving average is all the way down at $51.49.