Technical Analysis by Rajiv Singh
Proves its worthiness after achieving a year of profitability
Facebook (NASDAQ: FB) has proved its worthiness and has garnered a stamp of confidence from Standard & Poor’s by joining its S&P 500 stock index after the close of trading on December 20. The S&P Dow Jones Indices took the decision after Facebook’s meteoric rise among internet software and service companies, and after it achieved a year of profitability. Now there is no looking back for Facebook, which will replace Teradyne Inc. (NYSE: TER) in the S&P 500 at the close of trading on December 20. According to Reuters, Facebook’s market cap is roughly $120 billion, making it the 30th largest component of the S&P 500. In addition, Facebook will replace Williams Cos (NYSE:WMB) in the S&P 100 index of large US companies.
Joins elite club of powerful US companies
Facebook will now hold its own as one of the biggest, most powerful US companies with its addition into the S&P 500. Facebook will be added to the Internet Software and Services Sub-industry Index of the S&P 500 along with other website operators such as Google Inc. (NASDAQ:GOOG), eBay Inc. (NASDAQ:EBAY), Amazon.com Inc. (NASDAQ:AMZN), and Yahoo! Inc. (NASDAQ:YHOO). It is interesting to note that among the social internet companies that have launched IPOs in the past three years such as LinkedIn Corp. (NYSE:LNKD), Yelp Inc. (NYSE:YELP), and Twitter Inc. (NYSE:TWTR), Facebook is the first to make it into the S&P 500.
Since its IPO in May 2012, Facebook is already a member of the Russell 1000 Index and the MSCI World Index. It joined the Nasdaq-100 Index in December 2012 after Facebook chose to list on the Nasdaq Stock Market rather than the New York Stock Exchange.
Soaring growth prospects
On Friday, December 13, Facebook’s shares rose 2.87% to $53.32 following S&P’s announcement about the inclusion into the S&P 500 since many investors track the index and buy shares of companies that enter it. Facebook’s shares have gained 6.12% in the last three trading sessions and 25.43% in the previous three months, outperforming the S&P 500, which has lost 1.51% in last three trading sessions and gained a mere 4.58% during the last three months. The chart below shows the three-day price movement for Facebook.
After having lost more than half its value in the months after its May 2012 IPO, investors questioned the company’s growth prospects. However, cashing in on the growing number of mobile and smartphone users, Facebook achieved a sharp turnaround and silenced skeptics, building on its advertising business and mobile promotions. And the result was there for everyone to see! Facebook’s stock has soared 95% this year and the company more than 1 billion users accessing its website through smartphones and tablets.
Industry experts believe that Facebook shares will continue to increase in the near term banking on strong drivers such as Facebook Exchange, Instagram monetization in North America, and video ads, and the continued convergence in the price of ad inventory towards average display cost per thousand advertising impressions metric (CPMs).
S&P listing heralds a new beginning
Gaining entry to the benchmark S&P 500 will provide Facebook with a guaranteed base of shareholders from funds that follow the indexes. More than $5.14 trillion tracks the S&P 500, according to the S&P website.
In Q3 ended 30 September 2013, mobile promotions accounted for 49% of Facebook’s total ad revenue, as compared to 41% in the year-ago period. The mobile user base expanded to 874 million. Overall, the average revenue per user (ARPU) increased to $1.72 for Q3, up from $1.29 in Q3 2012 and $1.60 in Q2 2013.
Globally, Facebook had 1.19 billion monthly active users (MAUs) in Q3, up from 1.15 billion MAUs in Q2 and 1.01 billion MAUs in the year-ago period. The average daily active users (DAUs) were at 728 million for Q3, up from 699 million DAUs in Q2 and 584 million DAUs in the year-ago period.
WSA’s technical view on Facebook
Technically, Facebook Inc. looks strong at the current levels; it’s trading above the 9-day, 50-day, and 200-day moving averages, which makes a bullish trend for the stock going forward. However, momentum oscillators and relative strength indicators suggest the stock to be in overbought territory and convey a bearish trend in near future. MACD has recently formed a bullish crossover, which occurs when the MACD turns up and crosses above the signal line. We continue to believe in a further upside to the stock in near future with a price target of $57.