Facebook Stock Reports Its Most Important Quarter Yet and Doesn’t Disappoint

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FB - Facebook Stock Reports Its Most Important Quarter Yet and Doesn’t Disappoint

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Facebook’s (NASDAQ:FB) first-quarter report is perhaps one of the most important in the company’s history as a public company. Of course, there has been the swirl of controversy regarding the privacy breach of Cambridge Analytica.

Yet this has not been the only issue with FB stock. After all, tech stocks have been in tumult lately, as seen with this week’s awful performance of Alphabet Inc (NASDAQ:GOOGL) – even though the company had a solid quarter!

OK then, so what about Facebook earnings? Well, for the most part, Wall Street is bullish. Note that FB stock is up about 4.5% in aftermarket trading to $167.49.

Here’s then a run-down on the quarterly results: Revenues jumped nearly 50% to $11.4 billion and earnings came to $1.69 per share. As for the Street consensus, it was projecting $11.4 billion on the top-line and $1.35 per share in earnings. So yes, it was a pretty good beat.  The continued growth ramp also shows that advertisers remain committed to the platform.

Yet the user numbers came in line with the analysts’ forecasts. DAUs (Daily Active Users) were 1.45 billion, up 13% on a year-over-year basis and MAUs (Monthly Active Users) hit 2.2 billion, which were also up by the same amount.

Here are some other metrics from the Facebook earnings report:

  1. Capital expenditures were $2.81 billion and the cash balance was $43.96 billion.
  2. Mobile advertising reached about 91% of advertising revenues, up from 85% in Q1 of last year.
  3. The headcount spiked by 48% to 27,742.

The bottom line:  It looks like the Cambridge Analytica brouhaha had little impact on Facebook. But then again, it’s important to consider that the revelations did not come out in until mid-May. In other words, it’s probably too early to gauge the ultimate impact.

But it still seems like a good bet that FB — along with other social operators like Twitter Inc (NYSE:TWTR) and Snap Inc (NYSE:SNAP) — will face more intense regulatory mandates, both in the U.S. and across the world. Already Europe is in the process of rolling out its own requirements.

Generally, this would be a big problem.  Let’s face it, the key advantage of a social platform is its ability to monetize personal data, such as by getting better targeting from advertising campaigns.  Any burdens on this usage will likely have an adverse impact.

But when it comes to Facebook, there are some things keep in mind.  First of all, the company is unique in its sheer scale.  This is very attractive to large advertisers, such as The Coca-Cola Co (NYSE:KO) and Procter & Gamble Co (NYSE:PG).  They want to be where the “eyeballs” are.  Facebook also has other key platforms like Instagram, WhatsApp and Messenger.

Next, regulations may ironically benefit FB — even giving it more advantages versus smaller firms.  One reason is that the company can spread the expenses across a much larger revenue base.  And something else:  Facebook already has the advantage of a large user base.  This means a smaller social network may be hamstrung in building its own.

Should You Buy Facebook Stock?

Now I’ve been bullish on FB stock for some time. And yes, the recent issues regarding privacy are definitely serious. But it seems that all this has been baked into the stock price, as the forward price-earnings multiple is at a reasonable 18X. More importantly, as seen in the latest earnings report, FB’s core business does look quite resilient.

Tom Taulli is the author of High-Profit IPO StrategiesAll About Commodities and All About Short SellingFollow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.

Tom Taulli is the author of various books. They include Artificial Intelligence Basics and the Robotic Process Automation Handbook. His upcoming book is called Generative AI: How ChatGPT and other AI Tools Will Revolutionize Business.


Article printed from InvestorPlace Media, https://investorplace.com/2018/04/facebook-stock-reports-its-most-important-quarter-yet-and-doesnt-disappoint/.

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