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Last Wednesday, Facebook Inc (NASDAQ: FB) topped Wall Street estimates both for second-quarter earnings and revenue. However, shares went south as much as 5% in extended trading due to guidance of slowing revenue growth. CEO Mark Zuckerberg spent much of the company's earnings call revealing his vision for the company's transformation from social media to a metaverse: a digital world that Facebook is investing billions of dollars to create.
The report consisted of two parts. On one side, the social media giant crushed financial expectations but on the other, it missed slightly on users.
Figure-wise, adjusted earnings amounted to $3.61 per share, exceeding $3.03 per share expected by Refinitiv-gathered analysts. Revenue grew by 56% YoY to $29.08 billion, also exceeding $27.89 billion, accelerating from a 48% increase in the prior quarter. It is Facebook's fastest growth since 2016.
Daily active users amounted to 1.91 billion whereas monthly active users amounted to 2.90 billion. Average revenue per user was $10.12, exceeding $9.66 as expected by StreetAccount analysts. Total user base across Facebook and its-owned Instagram, Messenger and WhatsApp gathered 3.51 billion monthly users.
In the U.S. and Canada, where Facebook generates most average revenue per user, the company's daily active user count remained unchanged from first quarter, standing at 195 million. However, in Europe the count declined from 309 million in the first quarter to 307 million.
Free cash flow at the end of the quarter amounted to $8.51 billion.
A Metaverse Transformation
Revenue from Facebook's Other segment that includes consumer hardware such as Oculus virtual reality headsets, increased 36% and amounted to $497 million, coming in lower than the $685.5 million StreetAccount expected.
Zuckerberg expects people will transition to seeing Facebook as a metaverse company, and advertising will be a meaningful of that new universe. Zuckerberg's vision for this virtual world also requires a sense of presence which is why Facebook is investing heavily construct the needed hardware. The business model of the metaverse is built around the sale of digital goods and experiences but the goal won't be to sell devices at a high premium.
See also: How To Buy Facebook Stock
Even as second-quarter results came in ahead of estimates, increased ad targeting headwinds stemming from regulatory and platform changes are expected. Snap Inc (NYSE: SNAP) and Twitter Inc (NYSE: TWTR) have also navigated the challenges of Apple's recent iOS 14.5 update which gives people more control over apps that want to track them but Facebook expects a larger impact from iOS 14.5 in the third quarter compared to the just reported quarter. Big tech companies are facing another significant challenge- each other. This is a result of an increased overlapping of their business models that are expanding across services. Apple's battle with Facebook over privacy control can be viewed as an open arm wrestle.
Facebook expects YoY total revenue growth rates to decelerate significantly on a sequential basis which is effectively unchanged from its guidance three months ago.
Although a federal court dismissed an antitrust complaint from the Federal Trade Commission against the company, along with a separate case brought by 48 state attorneys general, the social media giant came under the scrutiny of the Biden administration when the White House reprimanding the social media company for not doing enough to combat misinformation on its services that discourage people from taking Covid-19 vaccines. At one point, President Joe Biden said "they're killing people" by allowing the diffusion of misinformation.
However, although Facebook is known for being a controversial company with its fair share of issues, delivering better than expected financial results is not one of them. The gains of tech stock suggest that a digital revolution is here to stay as their offerings have now penetrated every inch of our lives and that is something regulators can do very little about.
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