Facebook FB reported stronger-than-projected second-quarter 2019 financial results and its user growth remained strong despite all of the social media power’s privacy worries. Meanwhile, Amazon AMZN fell short of earnings estimates but saw its revenue come in above Wall Street projections as cloud computing and Prime popped.
Quick Q2 Overview
At this point, all of the so-called FAANG stocks have posted their quarterly results. Apple AAPL reported earlier this week and saw its revenue climb roughly 1%. Google parent Alphabet GOOGL topped estimates and announced a massive buyback program. Netflix NFLX was the first to report of the group and its stock tumbled after it fell way short of subscriber estimates.
As of Wednesday, we had results from 305 S&P 500 members out, with earnings down -3.5% on +4.7% higher revenues. And 77% of the Technology sector’s total market cap in the index is now out a well (also read: Making Sense of Q2 Earnings Results).
The Facebook Pitch
Mark Zuckerberg’s firm paid a historic $5 billion Federal Trade Commission fine and its government oversight worries aren’t behind it yet. The company disclosed in its Q2 report that the FTC opened in June an antitrust investigation and the U.S. Department of Justice announced in July “it will begin an antitrust review of market-leading online platforms.”
Amid all the negative headlines and controversy, Facebook’s daily and monthly active user totals climbed 8% last quarter, to match Q1’s expansion. Plus, FB executives estimate that over 2.7 billion people use at least one of its “Family of services” every month. This includes Facebook, Instagram, WhatsApp, and Messenger, and this figure alone should help Facebook remain a digital advertising force for years to come.
Zuckerberg and Facebook also plan to introduce a blockchain-based cryptocurrency as part of its broader plan to diversify. This expansion includes a business and payment focused push across everything from Instagram to WhatsApp. Along with payments, the company hopes to expand its answer to eBay EBAY and Craigslist, known as Facebook Marketplace. Furthermore, the company’s augmented and virtual reality business is still in the early days.
The Amazon Pitch
Amazon’s Q2 earnings popped 3% to hit $5.22 a share, which fell short of our $5.29 estimate. The firm’s revenues climbed 20% to reach $63.4 billion and beat our projection. The e-commerce giant’s quarterly revenue expansion topped Q1’s 17% and came in-line with Q4 2018’s 19.7% growth. Q2 did, however, mark the continuation of slowing revenue growth, as investors had grown used to 30% to 40% top-line expansion.
Still, AWS surged 37% as its cloud unit once again helped drive growth as it fights off rivals like Microsoft MSFT. The Prime-heavy subscription business also popped 37%. Amazon’s digital ad segment posted impressive growth as well, and its bread-and-butter e-commerce business maintained its strength. Online store sales climbed 14% to $35.05 billion, with its higher-margin third-party seller services up 23% to $11.96 million.
Outlooks & Earnings Trends
Moving on, our current Zacks Consensus Estimates call for Facebook’s Q3 revenue to jump 26.2% to $17.33 billion, with full-year fiscal 2019 revenue projected to climb 25.9% from $55.84 billion to $70.31 billion. The social media giant’s fiscal 2020 sales are then expected to climb 21.8% higher than our current year estimate to reach $85.65 billion.
At the bottom end of the income statement, its full-year fiscal 2019 EPS figure is projected to fall nearly 16% as it maintains its spending to improve security and expand. However, investors will be happy to see that FB’s fiscal 2020 EPS figure is expected to skyrocket 50% above our 2019 projection. Facebook has also seen its earnings estimate revision activity trend heavily upward since its earnings release, particularly for Q3 and fiscal 2020.
Amazon’s Q3 revenue is expected to pop 21%. Peeking ahead, AMZN’s full-year 2019 sales are projected to hit $277.88 billion, which would mark a 19.3% climb. Fiscal 2020’s revenue is then set to jump to over 18% above 2019 to reach a whopping $328.29 billion. As we alluded to earlier, this would mark a downturn compared to Amazon’s top-line growth from 2016 to 2018, but come in near 2015’s 20.2% growth and 2014’s 19.5%.
At the bottom end of the income statement, AMZN’s 2019 earnings are projected to climb nearly 22%, with 2020 expected to surge 37% higher than 2019. Unlike Facebook, Amazon’s earnings revision activity has moved more heavily in the wrong direction recently.
FB and AMZN operate different businesses, yet both are prepared to venture into new growth areas. Amazon is ready to dive deeper into everything from pharmaceuticals to physical retail stores. Facebook, on the other hand, hopes e-commerce and digital payments can help drive growth going forward.
Facebook and Amazon are both currently Zacks Rank #3 (Hold) stocks and hold strong, though slowing revenue growth outlooks. Shares of Amazon have lagged far behind FB in 2019, up roughly 23% compared to Facebook’s 47% jump. AMZN stock closed regular trading Thursday at $1,855 per share, down roughly 10% from its 52-week highs. Facebook shares ended the first day of August 7.6% off its 12-month highs.
Both companies face the possibility of government intervention. Yet it’s hard to speculate on what, if anything, might happen. Amazon is clearly more diversified, even though Facebook plans to become more than a digital ad giant. Nevertheless, let’s pick a winner of this battle for which stock looks the best for the rest of 2019.
Amazon stock has not climbed as much as FB this year, which could give it more room to run heading in August and beyond. We can also see that AMZN’s price/sales ratio marks a significant discount against its tech titan peer. Therefore, AMZN is today’s victor, but FB appeared impressive in defeat.
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