Facebook, Inc. Common Stock (NASDAQ:FB) just came out with earnings, and our initial take is just south of “meh”. The fact that the stock has rallied in response is likely a signal about where we are in the near-term rhythm of the FAANG stock swings. In other words, the QQQ might be set to bounce a bit here.
Perhaps really pointing to the issue, we are now looking at a stock that is trading give-or-take around 20x forward EPS, but with no competition, massive scope and reach, and tremendous growth still cooking along.
Facebook, Inc. Common Stock (NASDAQ:FB) reported Q3 (Sep) earnings of $1.76 per share, $0.32 better than the consensus estimates, which were hovering around $1.44. Revenues jumped by about 32.9% year/year to $13.73 bln, but fell just shy of the $13.82 bln expectations.
One clear story here is the jump in expenses (+53% to $7.95 bln). The trend in falling engagement in the big markets of the developed world has forced a more aggressive bearing. That really is a big shift. Not only is the low-hanging fruit off the tree in terms of new accounts, but the existing accounts in the major markets need constant maintenance to keep up the sense of an actively engaged audience (which, if you recall, is the actual product being sold by the company – the audience – to its actual customers – the advertisers).
Daily active users (DAUs) came in at 1.49 billion on average for September 2018, which represents an increase of 9% year-over-year.
Monthly active users (MAUs) came in at 2.27 billion as of September 30, 2018, representing an increase of 10% on a year-over-year basis.
Mobile advertising revenue — Mobile advertising revenue represented approximately 92% of advertising revenue for the third quarter of 2018, up from approximately 88% of advertising revenue in the third quarter of 2017.
We estimate that more than 2.6 billion people now use Facebook, WhatsApp, Instagram, or Messenger (our “Family” of services) each month, and more than 2 billion people use at least one of our Family of services every day on average.
“Our community and business continue to grow quickly, and now more than 2 billion people use at least one of our services every day,” said Mark Zuckerberg, Facebook founder and CEO. “We’re building the best services for private messaging and stories, and there are huge opportunities ahead in video and commerce as well.”
Conclusions
All in all, the report was certainly not a home run, and probably more of a pop up to the catcher in foul territory. But, as we noted earlier, the stock is rallying on this data and tone. That suggests the big sellers have been exhausted. The work of processing this information into the price of the stock has maybe been accomplished over the past 3 weeks of sharp selling.
The Nasdaq 100 futures have powered higher in after hours action as well, and are now up over 2.3% off the lows recorded in the mid-afternoon today before the rally into the closing bell.
As a final point, it’s important to remember, as we covered in our prior piece on the stock, there is absolutely no competition for what Facebook does. They are doing a terrible job at what they do, and still growing at 32% on a y/y basis. Imagine where this stock might be if they overcome their image and practice issues and get back on track in terms of public perception.
With no serious competitors, whether you like or hate the company itself, the stock is still probably going to have a tough time falling.