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Facebook Inc (FB) Shares Fly As “Low Hanging Fruit” Effect Lasts

Facebook Inc NASDAQ:FB

Facebook Inc shares hit a new all time high on Monday as traders continue to try to price Google’s success in the June quarter into the stock. The Menlo Park firm won’t release earnings until July 29, but those in the market appear to believe in the “low hanging fruit” thesis espoused by Mizuho Securities analyst Neil Doshi.

Facebook Inc NASDAQ:FB

Shares in Facebook hit an all time high of $98.08 on Monday’s market. Shares are up by close to 8 percent since Google released its blowout earnings numbers for the three months through the end of June.

Facebook picks up Google’s slack

Mr. Doshi,speaking to CNBC about Google’s earnings, said “there is a lot of low hanging fruit at Facebook. They have been very targeted in their spend and we think that video and Instagram could be very big businesses in the next 12 to 18 months.”

 

With Facebook ad sales growing faster than those at Google, according to trend lines established in the last number of reports, the market is looking for a big beat from Mr. Zuckerberg and his team this time around.

A note Evercore Partners published on June 4 showed that Facebook’s traffic to top sites was growing faster than Google’s, and that research has been backed up by other studies.

Wall Street is, by consensus, looking for the firm to show earnings of 47 cents per share for the second quarter. Sales are forecast to hit $3.974bn by the same group. The median price target on shares at the firm now sits at $99, less than 1 percent away from its price on today’s market.

Most analysts following Facebook have not updated their outlook since Google released its figures for the second quarter, but they are likely to do so in the week leading up to the release of the firm’s earnings report.

If Wall Street’s appreciation for Facebook business reflects that of Mr. Doshi, forecasts may be set to rise in the days ahead and price targets may go up. That’s the kind of move that the market appears to have been pricing in since Google released its most recent earnings report.

Betting on Facebook’s rise

The earnings that Facebook releases next week have already been dismissed by some on Wall Street as less important than the long term outlook for the company.

This may be the first report in which Instagram adds to the bottom line in a real way, but Sarah Hindlian of Brean Capital says that the report is “less relevant” than past reports.

Ross Sandler at Deutsche Bank echoed that idea in a July 15 report on Facebook. He said that it’s more important to price in future growth at Instagram, Messenger and WhatsApp than it is to listen to the small ups and downs likely to appear in the second quarter report.

It looks easier for Facebook to expand in the ad business because it doesn’t have to blaze its own trail just yet. All it has to do is follow in the footsteps of Google and gather the “low hanging fruit” in a growing market.

Traders on Monday are betting that the Google numbers mean good things for Facebook shares in both the short term and the long term. We’ll see if that feeling last through the release of earnings, and any surprises that the Facebook team might have in store on Thursday week.

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