Options Trade – Facebook Inc (NASDAQ:FB) Calls 
Friday, February 20, 2015

**OPTIONS TRADE: Buy the FB Jun 2015 80.000 call (FB150619C00080000) at or under $4.90, good for the day. Place a protective stop loss at $1.90 and a pre-determined sell at $9.00.

by Ian Harvey

February 20, 2015

Introduction

There appears to be new social media stock hitting the market constantly but one stands out from the rest -- Facebook Inc (NASDAQ: FB), a social networking website company, is definitely the largest and probably the most capable of all of them. Facebook has a market cap of $214 billion which is more than three times the size of Twitter, LinkedIn and Yelp combined.

FB has been in a tight range between $70 and $82 since last July, but now could finally be breaking out much higher.

Facebook has enjoyed a good run over the last year. The stock is slightly down since the start of this year, but the social network has been a powerful force to consider in digital circles.

Earnings have been relatively spot-on and spending has surpassed guidance, but the bulk of it is being spent on research and development including Facebook’s VR acquisition, Oculus Rift.

Facebook has revealed in one of its coding blogs that it is making greater use of modular switches as well as displaying an open-source modular switch known as “6-pack”. As a modular switch, all components run individually and while they are connected via network fabric, the removal of any component would not adversely affect other units from working optimally – in other words open-sourcing. The idea focuses on making data centers cheaper for Facebook and other Internet-based businesses, while increasing availability and customization at the server-end of resources. Should it become a standard that most companies go by, Facebook would also be serving its own interests by having a certain degree of indirect control on how the Internet and traffic works.

Technical Details

The stock has a yearly high of $82.17 while the 52-week low is $54.66. The company has a market cap of $169,067 million and there are approximately 2,236,334,000 shares outstanding, according to the latest information.

The stock’s 50-day moving average is $76.66 and its 200-day moving average is $76.10.

The company has a market cap of $212.0 billion and a P/E ratio of 68.55.

Earnings

Facebook last announced its earnings results on Wednesday, January 28th. The company reported $0.54 earnings per share for the quarter, beating the analysts’ consensus estimate of $0.48 by $0.06. The company had revenue of $3.85 billion for the quarter, compared to the consensus estimate of $3.78 billion.

During the same quarter last year, the company posted $0.31 earnings per share. Facebook’s revenue was up 49.0% compared to the same quarter last year. On average, analysts predict that Facebook Inc will post $1.95 earnings per share for the current fiscal year.

Positive Factors

1. Funds holding Facebook are certainly providing positive vibes.

In its latest 13F filing with the U.S. Securities and Exchange Commission, Point72 Asset Management, led by billionaire Steve Cohen, revealed its equity portfolio at the close of the fourth quarter of 2014, which was valued at $14.25 billion. The fund’s diversified portfolio contains a total of 644 positions.

Point72 Asset Management was bullish on Facebook, as the fund boosted its stake in the company during the fourth quarter to 2.35 million shares from 376,200 shares held earlier. The holding is valued at $183.11 million.

Other funds betting big on Facebook include Stephen Mandel’s Lone Pine Capital, which disclosed owning 13.50 million shares at the end of 2014, and Coatue Management, led by Philippe Laffont, which held 7.18 million shares as of December 31, 2014.

2. Despite a solid Q4 beat of $0.06 ($0.54 vs. $0.48) on January 28, the Facebook has not done much, for the most part trading in a $74.00 to $77.00 trading range since the favorable earnings report.

However, in Thursday's session, last week, it had no problem clearing that major hurdle at the upper-end of the range. Once breaching that level, it never looked back, steadily climbing the entire day until finding some intraday resistance at $79.75. That level coincides with its December 31 high ($79.80) and the psychological resistance level of $80.00. However, this has settled back slightly at this stage.

3. Facebook has been toying with rolling out video across its site for some time now. There's no denying its potential: just testing video spots on Facebook commanded a whopping $1 million a day from advertisers "lucky" enough to take part in the experiment. The reason Facebook, as well as Google's YouTube property, has a seemingly unlimited upside is because video ads work, and marketers will pay for results.

Additionally, video ads are one of the fastest growing areas in digital marketing. Video spots generated just shy of $6 billion last year, and that's expected to grow to nearly $8 billion this year. Not surprisingly, YouTube dominates video today, accounting for nearly 19% of the overall market. But with Facebook going all in, and its user's already eyeing over a billion videos a day, Google's YouTube is going to have a fight on its hands.

4. Today, Facebook has nearly 1.2 billion of its MAUs are mobile, and more impressively, just shy of 70% of Facebook's ad revenues last quarter came from mobile -- a 53% improvement from a year ago. And if not for the strong dollar negatively impacting exchange rates, mobile ad revenues would have increased 58%.

Analysts Opinions

Many analysts have commented on Facebook’s share price target recently.

Facebook Inc is still one of the most favored stocks at Cowen and Company for 2015. The sell-side firm made this clear in its latest research note, maintaining an Outperform rating, and a price target of $91 on the stock.

Cowen and Co. is of the view that Facebook stock is quite undervalued given rising prospects for top-line growth. Investors also fail to realize the growth prospects of Instagram, according to the firm. Cowen analyst John Blackledge describes Instagram as a “valuable asset for Facebook” on part of its massive active user base, which surpassed Twitter Inc’s last quarter. The analyst notes the photo-sharing platform has the highest ad demand, according to Cowen’s social user and advertisement buyer survey. Instagram crossed the 300 million mark in terms of total number of registered users by the end of 2014. The analyst expects this number to increase by 50% to 680 million in 2020.

Cowen values Instagram at $33 billion, which could be a very attractive investment opportunity for many. The firm sees an upside potential ranging from 23-36% on Facebook shares.

On the 3rd February Facebook was given a new $40.00 price target on by analysts at Wedbush. They now have a “hold” rating on the stock.

Also, on the 2nd February Facebook was upgraded by analysts at Zacks from a “neutral” rating to an “outperform” rating. They now have a $91.00 price target on the stock.

Zacks’ analyst wrote, “Facebook reported a modest fourth-quarter 2014 results with both the top and bottom lines improving year over year. The company has been benefiting from its expanding user base, increasing engagement levels, frequently updated mobile products and strategic acquisitions. These are the factors attracting software developers and advertisers and thereby, ad dollars to Facebook. The growth in the quarter was especially driven by a robust increase in the number of Mobile daily active users and subsequently the increase in mobile ad revenues. We are upgrading our recommendation on FB shares to Outperform from Neutral and set a price target of $91.00. “

The company has been the subject of a number of research reports:-

• 1/29/2015 – Facebook had its price target raised by analysts at Pivotal Research from $105.00 to $106.00. They now have a “buy” rating on the stock.

• 1/29/2015 – Facebook had its price target raised by analysts at Cantor Fitzgerald from $80.00 to $90.00.

• 1/29/2015 – Facebook had its price target raised by analysts at JMP Securities from $85.00 to $94.00. They now have a “market outperform” rating on the stock.

• 1/29/2015 – Facebook had its price target lowered by analysts at CRT Capital from $84.00 to $82.00. They now have a “buy” rating on the stock.

• 1/29/2015 – Facebook had its price target raised by analysts at Jefferies Group from $100.00 to $105.00. They now have a “buy” rating on the stock.

• 1/29/2015 – Facebook had its price target raised by analysts at Raymond James from $84.00 to $90.00. They now have an “outperform” rating on the stock.

• 1/29/2015 – Facebook had its price target lowered by analysts at RBC Capital from $92.00 to $90.00. They now have an “outperform” rating on the stock.

• 1/29/2015 – Facebook had its price target raised by analysts at Credit Suisse from $102.00 to $104.00. They now have an “outperform” rating on the stock. They wrote, “Facebook reported better-than-expected results with revenue and Adj. EPS of $3.85b and $0.54 respectively vs. consensus $3.52b and $0.48. Our 1Q15 estimates for revenue, adj. EBITDA and adj. EPS are now $3.15b, $1.88b, and $0.33 respectively vs. prior $3.17b, $1.75b, and $0.29. For FY15, our estimates for revenue and adj. EBITDA are now $15.8b, $9.39b, and $1.68 vs. prior $15.9b, $8.8b, and $1.52 – change to our revenue estimate is due to Audience Network’s accounting change from gross to net. Our price target increases to $104 vs prior $102 on higher-than-expected revenue and we maintain our OUTPERFORM rating.”

• 1/29/2015 – Facebook had its “” rating reaffirmed by analysts at Oppenheimer. They now have a $100.00 price target on the stock. They wrote, “While 4Q margins were lower than expected on higher expenses, management narrowed the high end of its outsized ’15 expense guidance,” Helfstein wrote. “However, we still believe expense guidance is overly conservative, given the magnitude of the margin beat in ’14.”

• 1/29/2015 – Facebook had its price target raised by analysts at Stifel Nicolaus from $94.00 to $97.00. They now have a “buy” rating on the stock.

• 1/29/2015 – Facebook had its price target raised by analysts at Canaccord Genuity from $88.00 to $90.00. They now have a “buy” rating on the stock.

• 1/29/2015 – Facebook had its price target raised by analysts at Goldman Sachs from $85.00 to $90.00. They now have a “buy” rating on the stock.

• 1/29/2015 – Facebook had its price target raised by analysts at Barclays from $83.00 to $88.00. They now have an “overweight” rating on the stock.

• 1/23/2015 – Facebook was given a new $90.00 price target on by analysts at Deutsche Bank. They now have a “buy” rating on the stock.

• 1/22/2015 – Facebook is now covered by analysts at Societe Generale. They set a “sell” rating on the stock.

• 1/14/2015 – Facebook was given a new $105.00 price target on by analysts at Pivotal Research. They now have a “buy” rating on the stock. They wrote, “Facebook remains our favorite name in the sector. Our YE2015 price target is $105, up from $103 previously. Facebook can point to a wide range of factors which will sustain growth through 2015 and beyond, as increasing share of spending from small businesses and large brands alike as well as ongoing improvement in focus on performance-based marketers will all help to sustain rapid growth. We continue to rate Facebook BUY.”

• 1/14/2015 – Facebook was given a new $102.00 price target on by analysts at Credit Suisse. They now have a “buy” rating on the stock. They wrote, “We have made numerous changes to our estimates as we layer in contribution from Facebook’s new mobile ad network, push out Graph Search, and update FX. We have increased our target price from $88 to $102 as we roll forward our valuation parameters to use 2015 estimates.”

• 1/14/2015 – Facebook had its price target raised by analysts at Oppenheimer from $88.00 to $100.00. They now have an “outperform” rating on the stock. They wrote, “We expect strong 4Q results, driven by better engagement and strong monetization. Consistent with recent qtrs, the company will likely beat its expense guidance resulting in higher margins, in our view. Checks suggest 4Q pricing +14% q/q and +21% y/y, with same-client spending +32% q/q and 33% y/y. This excludes video or Instagram. Organic reach is becoming more difficult, due to competition for newsfeed impressions, which is driving pricing. Right-rail ads now just two slots per page. Year-to-date 4Q US minutes increased 34% y/y, compared to +35% in 2Q and above our prior +31% estimate. We also see upside from increased video adoption. Raising target to $100 from $88 on increased Instagram valuation from higher member estimates and lower tax assumptions.”

• 1/12/2015 – Facebook had its “buy” rating reaffirmed by analysts at Piper Jaffray.

• 1/12/2015 – Facebook was given a new $88.00 price target on by analysts at Canaccord Genuity. They now have a “buy” rating on the stock.

• 1/7/2015 – Facebook had its “positive” rating reaffirmed by analysts at Bank of America. They wrote, “We continue to be constructive on Facebook’s strong engagement (64% of users access daily), usage share gains, multi-app mobile position and monetization opportunity, and see several levers to help drive incremental revenue growth in 2015-2016. Also, we see Facebook’s valuation as more attractive/defensible vs social peers at 31x 2016E EPS (~1x 2016E growth); and adjusting for a 23% long-term tax rate, we would get $2.90 in EPS and a 27x multiple. Our $91 PO ($88 earlier) is based on 32x our 2015E EPS, plus $10/share for combined cash and WhatsApp value.”

• 1/5/2015 – Facebook was given a new $91.00 price target on by analysts at Bank of America. They now have a “buy” rating on the stock.

• 12/29/2014 – Facebook was given a new $90.00 price target on by analysts at Wedbush. They now have a “buy” rating on the stock.

• 12/29/2014 – Facebook was given a new $85.00 price target on by analysts at JPMorgan Chase & Co.. They now have a “buy” rating on the stock.

• 12/22/2014 – Facebook had its “buy” rating reaffirmed by analysts at Monness Crespi & Hardt.

• 12/19/2014 – Facebook was given a new $85.00 price target on by analysts at Goldman Sachs. They now have a “buy” rating on the stock.

• 12/19/2014 – Facebook had its price target raised by analysts at Citigroup Inc. from $35.00 to $86.00. They now have a “buy” rating on the stock.

Of the 53 analysts covering the Facebook stock, 44 have issued a Buy call, eight have recommended a Hold, and one analyst advocates a Sell.

29 Brokerage firm Analysts have agreed with the mean estimate for the short term price target of $91.48 in Facebook. However, the stock price could fluctuate by $ 7.72 from the estimate as it is suggested by the standard deviation reading. The higher estimate has been put at $107 price target with the lower price estimate is calculated at $75.

Conclusion

And Facebook keeps going – only last week, Facebook in partnership with Reliance Communications launched the internet.org app to provide free mobile internet service in India. The social network giant said the availability of internet.org in the country is a “big step forward” in its initiative to connect everyone to the internet and help people share ideas and creativity to the rest of the world.

Separately, the United States Patent and Trademark Office approved the patent application of Facebook for its technology that would identify experts and influencers on a social network. Andrew Bosworth, head of Facebook ads submitted a patent application in 2011 and the social network giant received the approval this week.

All in all, Facebook stock, now that the stock has broken out of its trading range, along with its sound strategies should continue upwards, which is excellent for this options call.

Therefore, based on the facts above the following options trade is recommended…..


**OPTIONS TRADE: Buy the FB Jun 2015 80.000 call (FB150619C00080000) at or under $4.90, good for the day. Place a protective stop loss at $1.90 and a pre-determined sell at $9.00.



”Success is simple. Do what's right, the right way, at the right time.”


Option Tip for your Success!
Options traders are not successful because they win.
Options traders win because they are successful.



Back to Stock Options Made Easy Home Page

Back to Option Trades from Options Trade – Facebook Inc (NASDAQ:FB) Calls - Friday, February 20, 2015




Search Stock Options
Made Easy



Enjoy Relaxed or Fast-Paced Trading? Choose your Membership Style...

Whether you prefer to take a laid-back approach to your trading,

or to charge ahead in your options trading,

 Stock Options Made Easy Armchair Trader and Cut-to-the-Chase Trader Memberships put everything you need to succeed at your fingertips for just  $39 or $79 per month.






Subscribe to our FREE
newsletter for all the latest options news!


Enter Your Email Address

Enter Your First Name











Follow S_O_M_E on Twitter