Why Facebook is Rallying After Earnings While Microsoft Wobbles

Facebook kicked off today's FAANG earnings wave

Feb 1, 2018 at 10:39 AM
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    Facebook Inc (NASDAQ:FB) and Microsoft Corporation (NASDAQ:MSFT) are both in focus today, as traders eye the latest quarterly earnings results from the two tech heavyweights. While FB is firmly higher despite a massive drop in time spent on the app, Dow component MSFT is churning around breakeven in the wake of its earnings beat.

    FB stock is up 3.7% to trade at $193.88, a new all-time high. In after-hours action last night, investors were initially rattled by news that time spent on FB fell by roughly 50 million hours per day -- but a 43% increase in the average price per ad and corresponding 48% year-over-year revenue jump has effectively soothed jitters. 

    Analysts have rushed to raise their FB price targets today, with 13 brokerage firms lifting their estimates. BofA-Merrill Lynch issued the loftiest new target of $265, while Pivotal Research handed out a rather begrudging boost to $152 -- about 27% south of FB's fresh intraday high.

    Today's wave of upbeat notes continues a trend of bullish analyst attention for FB. The security has racked up 25 "buy" or better ratings, compared to one "hold" and zero "sells." With the outperforming social media stock up 46% year-over-year, this optimistic configuration seems appropriate -- if slightly top-heavy, nonetheless.

    As for MSFT, the stock's earnings reaction today has been muted, with the equity bouncing between fractional gains and losses so far this morning. Similar to FB, the blue-chip software stock landed a robust nine price-target hikes after exceeding analysts' earnings and revenue estimates in its fiscal second-quarter report.

    But there were signs that optimism on Microsoft had become overdone ahead of last night's earnings results. For example, call buying has dominated over put buying in recent weeks on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), with MSFT sporting a 10-day call/put volume ratio of 3.90 -- in the 95th annual percentile. 

    Additionally, MSFT's 14-day Relative Strength Index (RSI) was docked at an overbought 75 as of yesterday's close, with the shares ending the session about 5% above their 20-day moving average. Essentially, it looks like Microsoft's earnings beat wasn't quite impressive enough to spur additional buying among the already-bullish crowd on Wall Street. At last look, MSFT was up just 0.4% at $95.43.


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