A month has gone by since the last earnings report for Facebook Inc (NASDAQ:FB). FB shares have added about 4.5% in that time frame, outperforming the market.
Will the recent positive trend continue leading up to the stock’s next earnings release, or is it due for a pullback?
Before we dive into how investors and analysts have reacted as of late, let’s take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Facebook Tops on Q4 Earnings Driven by Mobile & Video
Facebook earnings streak continues with yet another better-than-expected quarterly performance. Facebook’s fourth-quarter 2016 adjusted earnings of $1.24 per share and revenues of $8.8 billion easily topped the respective Zacks Consensus Estimate of $1.11 and $8.5 billion. This is Facebook’s sixth successive quarter of earnings and revenue beat.
Mobile and live video efforts are paying off big time for the social media giant. Instagram is also emerging as a major cash cow with over 500,000 advertisers. CEO Mark Zuckerberg continued to emphasize on bringing more and more video content on to the platform. It has been investing on original content and said that it will keep doing the same this year as well.
As expected, Facebook continues to maintain a cautious stance on revenue and ad growth. Facebook again stated that ad revenues will continue to grow but will face tougher year-over-year comparisons in the current year.
Moreover, as Facebook continues to ramp up investments, costs will increase. The company plans to go on a hiring spree this year and especially recruit engineers, which will further add to its costs.
Well it’s a no brainer that Facebook(or even any other company for that matter) will keep up with those dizzying initial growth rates as it gets bigger.
Facebook’s Quarterly Numbers in Details
Facebook reported non-GAAP earnings of $1.21 in the quarter, up 124% year over year. Revenues, excluding the impact of year-over-year changes in foreign exchange rates basis, increased 51% year over year.
Facebook’s consistently expanding user growth remains one of its biggest growth catalysts. Facebook’s monthly active users (MAUs) were up 17% year over year to a staggering 1.86 billion. In addition, at the end of the quarter, mobile MAUs were 1.74 billion, representing 21% year-over-year growth. Daily Active Users (DAUs) were 1.23 billion, reflecting 18% growth year over year while mobile DAUs were 1.15 billion, up 23% year over year.
Breaking down revenue components, advertising revenues were $8.629 billion, surging 53% year over year. Excluding the impact of changes in foreign exchange rates, revenues from advertising also increased 54% year over year. Advertising revenues were driven by increasing mobile engagement, higher number of marketers, and continuing investment in new products.
Mobile ad revenues in the quarter were $7.2 billion (up 61% year over year), contributing 84% to total ad revenues. Ad impressions grew 49%, driven by surging mobile ad impressions. Average price per ad increased 3% from the year-ago quarter. Average revenue per user was $4.83
Payments and other fees decreased 12% year over year to $180 million in the reported quarter owing to a reduction in payment revenues related to PC games. Management expects revenues from this segment to face further decline as PCs lose market share.
On the cost front, cost & expenses increased 29.3% to $4.2 billion, driven by increases in workforce and marketing expenses. However, robust revenue growth provided enough cushion to operating margins.
Non-GAAP operating income of $5.6 billion grew 58.9% year over year.
FB’s Balance Sheet & Cash Flow are Strong
Facebook exited the quarter with cash & cash equivalents and marketable securities of $29.4 billion, up 59.7% year over year.
The company generated nearly $16.1 billion of cash flow from operating activities in 2016 compared with $10.3 billion in 2015. Free cash flow was $11.6 billion compared with $7.8 billion last year. The company incurred capital expenditure of $4.5 billion in the year.
The Outlook for Facebook: Continued Growth
Non-GAAP expenses are projected to increase in a band of 47% to 57% while capex is expected to be $7 billion to $7.5 billion. The company expects 2017 to be a year of aggressive investments. The company plans to build more data centers as well as recruitmore engineers to fuel its AI & AR/VR technology ambitions.
Stock-based compensation is estimated in a range of $3.9 billion–$4.1 billion. The company expects amortization expenses in 2016 to be within $700 million–$800 million.
How Have FB Estimates Been Moving Since Then?
Analysts were quiet during the last one month period as none of them issued any earnings estimate revisions.
FB VGM Scores
At this time, Facebook’s stock has a great Growth Score of ‘A’, though it is lagging a bit on the momentum front with a ‘B’. However, the stock was allocated a grade of ‘D’ on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of ‘B’. If you aren’t focused on one strategy, this score is the one you should be interested in.
Based on our styles scores, the stock is more suitable for growth investors than momentum investors.
FB Stock Outlook: Hold for Now
Notably, the stock has a Zacks Rank #3 (Hold). We are looking for an inline return from the stock in the next few months.
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