Facebook’s Cryptocurrency Sees Fallout

Facebook (Ticker Symbol: FBWealth Strength IndexAAPL is Extremely Up and trending Up) has been having a fallout with its cryptocurrency, Libra. Paypal, eBay, Visa, Mastercard, and Stripe all announced last week that they will no longer be tied to Facebook’s permissioned blockchain digital cryptocurrency.  Visa stated that they still feel that a well-regulated blockchain network could help grow digital payments to a much greater group of people.

This comes on the heels of a solid earnings report from Facebook last quarter. The company reported an earnings per share beat of $1.99 vs. Wall Street analysts’ expectations of $1.88 per share.  Additionally, Facebook reported an earnings beat of $16.9 billion vs. Wall Street analysts’ expectations of $16.5 billion. Both Daily Active Users (DAU) and Monthly Active Users came in right in line with analysts’ expectations. Facebook did see the average revenue per user increased to $7.05 vs. Wall Street analysts’ expectations of $6.87.

The above image is a chart of the past two years of Facebook’s stock. The stock had a negative start to the year in 2018. Facebook spent the first two quarters trading lower, moving down 15%, before finding some price support around the $150.00 price level and putting in an oversold condition in its Relative Strength Index. Late in the second quarter, Facebook’s stock found some life and proceeded to rally led by two solid earnings and guidance reports that helped lead the stock higher. It continued to rally eventually trading to an all-time high of $218.62 on July 25th, 2018. Unfortunately for shareholders, the run was short-lived and Facebook’s next earnings release was very negative and it sent the stock gapping lower over 20%.

The stock continued to sell off over the rest of the year, finding price support just below the $130.00 price level. In the fourth quarter, the stock bottomed, forming a bullish divergence pattern, (as indicated on the chart by the black lines) where the stock makes a lower low in price but the Relative Strength Index makes a higher low. Traders and investors sometimes look at divergences for a possible pause within the current trend which can, at times, lead to a reversal as occurred in Facebook’s case. The stock has had a good start to 2019, finding dynamic price support twice at its 200-day moving average. The stock is positive for the year and is currently trading in between both its 100- and 200-day moving averages.

(Chart above courtesy of ​www.tipranks.com​)

Based on a survey of 37 analysts offering 12-month price targets, the average price target for Facebook’s stock is $236.19. According to that number, the stock is priced at a discount relative to Wall Street’s analysts and could be considered undervalued around current levels near $183.50.

Investors in Facebook should look to their next earnings release on October 30th for fresh news within the company.

 


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