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Facebook Stock Jumps on Earnings, Revenue Beats

John Divine


Facebook, Inc. (ticker: FB) posted earnings after the bell on Wednesday, beating both top- and bottom-line Wall Street expectations. FB stock jumped 4% in after-hours trading.

Revenue grew by 29% to $17.65 billion, topping the $17.37 billion analysts were expecting.

Earnings per share (EPS) clocked in at $2.12, easily above the $1.91 per share consensus estimate.

Heading into the earnings report, FB shares were up 44% year-to-date.

What to Know About Facebook Earnings

As is the case with many of the mega-tech companies, there's more color to a company's quarter than just the top and bottom line. For such heavily followed stocks, Wall Street loves to dig into the numbers to gain a better understanding of a company's health.

[The 10 Most Valuable Tech Companies in the World.]

For Netflix ( NFLX), this metric would be subscriber additions. For Amazon.com ( AMZN), revenue from Amazon Web Services is closely watched.

For Facebook, the sacred figure is user numbers. FB reported 1.62 billion daily active users in the September quarter, up 9% year-over-year and just beating out the 1.61 billion FactSet consensus number.

Monthly active users came in at 2.45 billion, up 8% year-over-year -- exactly in line with the FactSet consensus estimate.

Opportunities Ahead for Facebook

Although user growth isn't going blockbuster like it was in the good old days, that's simply a function of Facebook's already massive size. It's literally impossible to grow users at the pace Facebook did in the early going, because you can't ever, say, triple your user base from 2.5 billion to 7.5 billion. Earth doesn't have that many people.

So, Facebook's only option if it wants to stay a large-cap growth stock instead of a boring value pick is to expand its offerings, improve its operational efficiency and use leverage to amplify profits.

Facebook doesn't have any long-term debt, so its balance sheet has a lot of potential and can easily be tapped for cheap loans FB can use to invest in higher-return areas.

One new initiative Facebook is focusing on is Facebook Dating. After witnessing the success of Match Group ( MTCH), which owns Tinder, Hinge and other popular dating applications, Facebook figured it would get in the game itself. After most of the dating apps lean heavily on users Facebook data, so this is a natural fit.

There are also lots of opportunities that remain with Instagram, where FB plans to ratchet up its monetization plans by rolling out more features that enable influencers to sell products directly through Instagram. If Facebook can get a nice chunk of the e-commerce business, that could be another source of future growth.

Additionally, is trying out some original programming here and there with Facebook Watch, and users can stream everything from press conferences to live esports gaming competitions.

Facebook's Reputation Is at Stake

But while Facebook stock hasn't exactly been a dog recently, the company's image has certainly suffered, and FB investors find themselves having to take this reputational risk more seriously.

CEO Mark Zuckerberg and others on his executive team have been summoned to Capitol Hill multiple times in the last two or three years, to discuss everything from the Cambridge Analytica data scandal to, more recently, Facebook's aspiration to create a cryptocurrency, Libra, that can be transacted over its applications.

Washington and the Menlo Park, California-based Facebook aren't on the best of terms, and not only does it look like Congress will do everything it can to slow down or stifle Facebook's Libra project -- which is seen as a potential threat to the U.S. dollar -- but regulators are investigating Facebook on antitrust grounds.

The Bottom Line of Facebook Earnings

Facebook Q3 earnings were very good, and it's tough to find a number that stands out as something to be concerned about.

The major risks facing FB stock are intangible, and at this stage all Facebook can do is execute at a high level and work on repairing its reputation, which is the battle it's fighting now.

[See: 10 of the Best Stocks to Buy for 2019.]

While politicians can smear Facebook (while using the platform themselves to reach voters) all they want, Zuckerberg and his team have built a practically insurmountable network effect consisting of about 60% of all internet users worldwide.

That makes competition extremely hard to come by, and after this most recent report it's clearer than ever that FB is one of the best stocks to buy for the long-term investor.



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