Shares of social media giant Facebook (Nasdaq:FB-Free Report) have been in focus over the last few weeks as worries over a hot stock bubble have dominated the market. In fact, during an especially rough stretch from mid-March to mid-April, FB tumbled by nearly 20%, putting extra pressure on the firm to give investors some good news at earnings season.
FB did not disappoint with its first quarter results though, as the firm easily beat the Zacks Consensus Estimate of 18 cents a share on Wednesday, posting EPS of 25 cents. Revenues were also impressive, as FB posted $2.51 billion in revenues, a 72.2% increase from the year ago quarter.
The really impressive part of the earnings report was Facebook's continued surge in the increasingly-important mobile sphere. Mobile ad revenues were $1.3 billion, and were close to 60% of the total ad revenues, showcasing just how far FB has come in mobile in a very short time frame.
Clearly, Facebook has figured out mobile in a big way which is huge for their near term outlook as mobile monthly active users soared 34% year-over-year to just over one billion. And since Facebook already has users' likes, dislikes, and preferences, there is hope that Facebook can be a key stop for mobile advertisers seeking targeted audiences.
Thanks to this, some investors are starting to feel a bit better about FB stock in the near term, especially as the price continues to tumble, making FB an intriguing choice at these levels and especially so considering its growth rate projections. In fact, current figures have FB earnings growth at over 67% year-over-year for this year, and nearly 41% for next year.
In the health care sector, investors have been laser focused on the biotech space. This corner of the market has faced severe pressure over the past few months as concerns over hot momentum stocks have reached a new level.
And yet while many have been focused on biotechnology, we have also seen some weakness in a few names in the medical device space. This is interesting because, by and large, many names in the segment have held up quite well despite the slump that many of their peers in the drug space were seeing.
However, unlike in the drug space, many companies in the medical device segment have been driven by fundamentals lately, instead of just sluggish momentum. This has been particularly the case for Intuitive Surgical (Nasdaq:ISRG-Free Report) which has been under severe pressure and may have significant trouble in keeping the sales up for its key da Vinci surgical system in the near future.
This weakness in the da Vinci system sales was made abundantly clear in ISRG's most recent quarterly earnings report. In the release, ISRG put up a huge miss, posting earnings of just $2.67/share compared to estimates of $3.34/share. The firm cited the Affordable Care Act and uncertainty as the reasons for the big miss, and it also said that it may continue to have trouble selling in this environment for the future.
B of A in Talks with the DoJ
Bank of America Corporation's (NYSE:BAC-Free Report) legal woes continue with new settlement talks brewing between the bank and the U.S. Department of Justice (DoJ). The tentative settlement could cost BofA more than $13 billion. The news was first reported by Bloomberg.
It has been alleged that BofA, in an attempt to maximize profits, compromised on the quality of mortgage-backed loans sold in the pre-crisis period. The major portion of the faulty loans stems from BofA's acquisitions of Countrywide Financial Corp. and Merrill Lynch & Co. in 2008. These loans defaulted, thereby resulting in huge losses for investors.
The aforementioned settlement talks are still in a nascent stage and the actual amount is yet to be decided. As per the Bloomberg report, sources, on grounds on anonymity, further added that the final settlement would shape in the next two months.
Earlier in March, BofA had announced a settlement with the Federal Housing Finance Agency (FHFA), which is the conservator of government-sponsored enterprises (GSEs) Freddie Mac (OTCBB:FMCC-Free Report) and Fannie Mae (OTCBB:FNMA-Free Report), worth nearly $9.3 billion. The settlement resulted in pre-tax expenses of $3.6 in the first quarter.
Litigation expense and reserves for the same heavily weighed on BofA's first-quarter results. The company reported a loss per share of 5 cents in the first quarter of 2014, which was significantly short of the Zacks Consensus Estimate of earnings of 5 cents. If BofA has to pay another hefty fine down the line, the chance of recovering from the first-quarter loss seems bleak.
Going forward, in the backdrop of tightening regulations, higher compliance costs would further increase BofA's woes. However, on a positive note, the banking behemoth may return to profitability if its measures of improving the top line are able to counter the rising expenses.
Currently, BofA carries a Zacks Rank #5 (Strong Sell).
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