Can Facebook Break Higher?

With shares of Facebook (NASDAQ:FB) trading around $67, is FB an OUTPERFORM, WAIT AND SEE, or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

Facebook is engaged in building social products in order to create utility for users, developers, and advertisers. People use Facebook to stay connected with their friends and family, to discover what is going on in the world around them, and to share and express what matters to them with the people they care about. Developers can use the platform to build applications and websites that integrate with Facebook to reach its global network of users, building personalized and social products. Advertisers can engage with more than 900 million monthly active users — or subsets of users — on Facebook based on information they have chosen to share.

Facebook has quietly migrated Instagram and its 20 billion photos from Amazon’s (NASDAQ:AMZN) cloud computing service to its own data center. The transition took about a year in planning and a month for the actual migration, and Instagram’s 200 million users didn’t notice a thing. Wired reports that the company calls the transition the “Instagration,” and the migration was unlike any that Facebook had previously undertaken. In moving other properties that it had acquired, like FriendFeed, Facebook was able to shut down the service before migrating it to its own data centers. But moving Instagram, which Facebook bought in 2012, was a much bigger operation. The process involved moving the service from thousands of virtual machines on Amazon’s cloud computing service, where it was originally built, to a private data center operated by Facebook, all while avoiding disruptions to a service used by 200 million people. According to Wired, the move gives Instagram access to the wide range of software tools built into Facebook’s infrastructure.

The migration sets the precedent for the potential integrations of apps and services that Facebook may acquire in the future. In simple terms, the Instagration was made possible by an Amazon service called the Virtual Private Cloud, which enabled a 20-person team to effectively make a copy of Instagram’s underlying software at the Facebook data center. Once that copy was in place, the team was able to use a private network that included the entire data center, plus the Instagram operation on Amazon’s cloud, to securely transfer the data. But, as Wired reports, the migration wasn’t quite that straightforward: There were several intermediate steps involved.Before moving Instagram to Facebook, and before Instagram was even on Amazon’s Virtual Private Cloud, the team first had to move Instagram from another part of the Amazon cloud, Amazon’s EC2 cloud computing service, to the Virtual Private Cloud in order to retain control over the Internet addresses used by the machines running Instagram. That move was complex because Amazon doesn’t actually offer a way to move a property from EC2 to the Virtual Private Cloud. Facebook had to build its own networking tool, which it calls Neti, to transfer Instagram to the Virtual Private Cloud and then go through the process of, finally, transferring all of Instagram’s data to the software running at Facebook’s facility. All of the data had been transferred to Facebook’s facility by the end of April.

T = Technicals on the Stock Chart are Mixed

Facebook stock has been moving higher over the last couple of months. However, the stock is currently trading sideways and may need time to stabilize before heading higher. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Facebook is trading above its rising key averages which signal neutral to bullish price action in the near-term.


Source: Thinkorswim

Taking a look at the implied volatility (red) and implied volatility skew levels of Facebook options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Facebook options




What does this mean? This means that investors or traders are buying a very significant amount of call and put options contracts, as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

July Options



August Options



As of today, there is an average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a very significant amount of call and put option contracts and are leaning neutral to bullish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Increasing Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Facebook’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Facebook look like and more importantly, how did the markets like these numbers?

2014 Q1

2013 Q4

2013 Q3

2013 Q2

Earnings Growth (Y-O-Y)





Revenue Growth (Y-O-Y)





Earnings Reaction





Facebook has seen increasing earnings and revenue figures over the last four quarters. From these numbers, the markets have been pleased with Facebook’s recent earnings announcements.

P = Excellent Relative Performance Versus Peers and Sector

How has Facebook stock done relative to its peers, Microsoft (NASDAQ:MSFT), Google (NASDAQ:GOOG)(NASDAQ:GOOGL), LinkedIn (NYSE:LNKD), and sector?






Year-to-Date Return






Facebook has been a relative performance leader, year-to-date.


Facebook looks to provide a valuable social networking experience to its users, developers, and advertisers. The company has migrated Instagram and its 20 billion photos from Amazon’s cloud computing service to its own data center. The stock has been moving higher over the last couple of months, but is currently trading sideways. Over the last four quarters, earnings and revenues have been increasing, which has left investors pleased. Relative to its peers and sector, Facebook has been a relative year-to-date performance leader. Look for Facebook to continue to OUTPERFORM.

Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

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