Facebook (FB) Earnings After The Bell: Can The Growth Continue?

Earnings season is hitting the peak of its excitement, with the remaining FANG stocks reporting this week. So far, the market has largely responded positively to earnings with Netflix NFLX being the most significant expectation.

Facebook FB is a crucial report to watch out for, reporting its Q2 earnings after the bell today, Wednesday, July 23rd. Sell-side analysts have been bullish on FB over the past few months, raising estimates and propelling this stock into a Zacks Rank #2 (Buy)

Expectations

Facebook is expected to report an EPS of $1.90, which would represent a 9.2% appreciation from Q1 2018. The firm is estimated to report their most profitable quarter yet with $16.45 billion in quarterly revenue, which would illustrate 24% year-over-year growth. FB is a big mover on earnings with the last 5 quarterly reports impacting price by more than 5% with the most recent 3 all having a positive price action.

Daily active users (DAU) is a critical metric for Facebook, considering it is the driving force for all of its current and future revenue. Analysts are estimating 7.6% year-over-year DAU expansion, with 1.583 billion DAUs expected in this upcoming earnings release.

Overview

FB has consistently been able to grow its core user base with 1.56 billion daily active users and 2.38 billion monthly active users (this data is purely Facebook, not including Instagram or WhatsApp). This is an astounding figure considering that only 4.4 billion people on Earth have access to the internet. That means that more than 50% of humans with internet access will check their Facebook at least once a month, and 36% are using it daily.

You would think the user growth would plateau when they have almost reached their entire reachable market, but their user base is still growing quickly in the Asian-Pacific regions as well as developing countries across the world. As more people gain internet access, this total accessible market (TAM) will continue to grow.

Facebook has been able to demonstrate high double-digit topline growth figures since its inception, as it further monetizes its platforms. With FB’s extensive user data, the company are able to tailor ads for individual users based on search and consumption patterns.

The average revenue per users (ARPU) was $6.42 for Q1, representing a 16% year-over-year expansion. The most significant portion of FB’s revenue comes from the US and Canada, which makes up about 50% of revenue but only makes up 12% of Facebook’s total daily users. North America brought in $30.12 per user in Q1, representing an enormous 28% year-over-year increase.

There is still a lot of opportunity for FB to further monetize its users outside of North America and with consistent user growth, FB’s future outlook is positive.

Facebook is operating in a very competitive space, but they seem to be able to stay ahead of an endlessly shifting curve. Facebook and Instagram users continue to grow as other social media platforms seem to be hitting a plateau, such as Twitter TWTR and Snapchat SNAP who both have seen their growth begin to flatten.

Performance

FB has been booming since the beginning of the year with an over 52% share price appreciation. The stock has not only been outperforming the market but has also outpacing the rest of FANG. You can see the year-to-date performance of FB (blue), AMZN (red), NFLX (orange), and GOOGL (green) below.

FB is currently trading at reasonable multiples in its shift from a young growth stock to an established value stock with a 24.2x forward P/E. This valuation is on the lowest end of FB’s 5-year P/E trend and below the industry average. The company is still growing like a young start-up though with expected revenue growth exceeding 20% for both 2019 and 2020, according to sell-side analysts.

Take Away

When reviewing FB’s earnings after market the bell today, keep an eye on daily active users as well as management’s guidance and sentiment on the ability to further monetize the Asian-Pacific & developing markets.

Look to see if management provides any color on Facebook’s recently announced asset-backed cryptocurrency, Libra, which could provide the firm with significant revenue in the future.

Like I mentioned above, FB is a big mover on earnings, so watch out for an immediate gap up or down in after-hours trading once these results are released.

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