hiddenJan 27, 2016 08:43:45 IST
A recent drop in Facebook's stock has left the online social network trading at earnings multiples near record lows as it prepares to hand investors its fourth-quarter report.
Along with fellow technology leaders Netflix Inc, Apple Inc, Alphabet Inc and Amazon.com Inc, Facebook has been among Wall Street's top stocks in recent years, but a market selloff sparked by plummeting oil prices has pulled it down 7 percent so far in 2016.
In its fourth-quarter report due after the bell on Wednesday, the digital advertising heavyweight is likely to post revenue up 39 percent and net income up 35 percent, in line with growth rates in recent quarters, according to the average estimate of analysts tracked by Thomson Reuters.
"Facebook is eating the lunch of everybody in the industry and along with Google is in a co-hegemonic position where both are able to capture a disproportionate amount of spending," said Pivotal Research Group analyst Brian Wieser, who recommends buying shares of Facebook.
The retail launch this year of Facebook's Oculus Rift virtual reality hardware could fuel additional revenue growth. So could the future attempts to make money from WhatsApp after Facebook recently eliminated a $1 a year fee for the messaging app.
But even as Facebook's shares have moved steadily higher in recent years, investors trimmed the multiples they spent for each dollar of Facebook's expected earnings over the next 12 months, from 58 in February 2014 to as low as 32 this week, according to Thomson Reuters Datastream.
That compares to price-to-earnings (PE) ratios of 21 for Alphabet and 29 for Twitter, which has been plagued by slow user growth and a recent management exodus. The average PE for the S&P 500 is about 15.
PE is widely used on Wall Street to gauge the relative value of stocks although it is not the only such metric.
Facebook's PE hit a record low of 31 in 2012 following the company's botched public listing, which left its stock below its initial public offering price for more than a year. In the past year, Facebook's stock has gained 25 percent and it was flat on Tuesday.