Revenue up 30% yoy
EPS up 65% yoy
1m users added in the US
Stock up 12% after hours and still trades at a silly cheap multiple!
The media and the ‘efficient’ market may have decided that Facebook is finished but its advertisers and users sure don’t agree. I always follow the money and this is now a 5% position in my portfolio.
Hard to find a high growth monopoly with three dominant properties at these valuations!
Best,
GM
I’m still (very) long FB too, GrowthMonkey. It’s been a rough year, though the company has continued to perform well at growing its top and bottom lines. Hopefully, the stock price decline is beginning to change. From Mark Zuckerberg’s prepared remarks:
For the past couple of years, most of our focus and energy has gone into addressing some of the biggest social issues around the future of the internet – including election integrity, content governance, safety and security, data privacy, and digital well-being. These are all complex issues, but we’ve made real progress. In many of these areas we believe we’ve built the most advanced systems in the world – in many cases more advanced than any other company or government. And in other areas we have clear roadmaps ahead. Still, there’s a lot more to do, and I expect it will take strong execution through 2019 and beyond before we get all our systems to the levels we need.
But we’ve fundamentally changed how we run this company. We’ve changed how we build services to focus more on preventing harm. We’ve invested billions of dollars in security, which has affected our profitability. We’ve taken steps that reduced engagement in WhatsApp to stop misinformation, and reduced viral videos in Facebook by more than 50 million hours a day to improve well-being. We’ve made significant progress, and we’re going to continue this work. But we’re also going to allocate more of our energy to building new and inspiring ways to help people connect and build community.
The numbers look great:
Revenue (billions) Q1 Q2 Q3 Q4
2013 1.46 1.81 2.02 2.59
2014 2.50 2.91 3.20 3.85
2015 3.54 4.04 4.50 5.84
2016 5.38 6.44 7.01 8.81
2017 8.03 9.32 10.33 12.97
2018 11.97 13.23 13.73 16.91
EPS (Diluted) Q1 Q2 Q3 Q4
2014 0.30 0.25
2015 0.18 0.25 0.31 0.54
2016 0.60 0.78 0.90 1.21
2017 1.04 1.32 1.59 2.21*
2018 1.69 1.74 1.76 2.38
• Adjusted for impact of Tax Cuts and Jobs Act
2018 Q4 Earnings (Current):
Revenue Growth (billions)
2017 Q4 TTM Revenue = 40.65
2018 Q4 TTM Revenue = 55.84
YOY TTM Revenue Growth = 37.3%, previous quarter 41.7%
EPS Growth (Diluted)
2017 Q4 TTM Earnings = 6.16
2018 Q4 TTM Earnings = 7.57
YOY TTM EPS Growth = 22.9%, previous quarter 43.4%
P/E (Check Current Price) = 150.42/7.57 = 19.87
Trailing 1Y PEG = 19.87/37.3 = 0.53
Here are some of the other quarter’s highlights:
DAUs (daily active users): 1.52B, +9% YOY
MAUs (monthly active users): 2.32B, +9% YOY
Cash and cash equivalents: $41.11B, previous quarter $41.21B
Cap Ex: $3.34B, previous quarter $4.37B
Mobile advertising revenue: Made up 93% of all revenue, up from 89% in prior year’s quarter
Head count: 35,587 42% increase YOY
Operating margin: 46%
The numbers from the quarter were pretty stellar, but they always have been. We keep hearing about how users are leaving in droves, nobody will use the platform any more, etc. But nobody is leaving their audience to try out another platform. Think there is a wannabe “influencer” who is going to turn down that opportunity? No way. JMHO, people understand they post too much info, that there is no privacy on the platform, and they just don’t care. If the users don’t care, I certainly don’t.
I was listening to Jim O’Shaughnessy’s podcast Invest Like the Best the other day, and his guest, Michael Duda, was talking about the process of building brands and what type of marketing it takes. At one point, Duda just casually mentions that Instagram is a retailer’s dream advertising platform. That’s not going to change any time soon.
And let’s not forget WhatsApp and Messenger, two other platforms that I think will eventually be monetized.
Good quarter, but who knows how the market will react. FB has had lots of good quarters - I struggle to think of one bad quarter! - but the market has punished it regardless the past year. I personally feel like everyone has taken their best shot and the company’s platforms are still standing. But we shall see.
Matt
Long FB
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Thank you for your very detailed post Matt.
We share the same view; Facebook is a monopoly and its users aren’t likely to go anywhere. Facebook meets one of humans’ primal needs - social contact/connections and it won’t be easy for another business to replicate this network effect.
Billions of people all over the world communicate via whatsapp, they interact with their friends (both current and old) on Facebook, their entire life history/photos/videos since Facebook started are on the platform, all their other friends/family members are on there too.
Does anyone really think these people are suddenly going to leave Facebook and migrate to say, ‘Legbook’!? Why would they when all their contacts are still on Facebook?
Instagram is another exceptional platform where all the celebrities and users post photos/vidoes etc and interact with each other - don’t see this being disrupted either.
Users know their data is being harvested/used and they don’t care. In my view, Facebook knows more about its users than any other business on the planet and this is a remarkable advantage!
As far as advertisers are concerned, they love the fact that they can post targeted ads based on each user’s history, habits, profile etc.
Facebook’s scale and network effect are nearly impossible to replicate at this point and this should translate into high returns on invested capital (i.e. shareholder returns).
Even if a competitor had $10 billion to compete against Facebook; it will probably fail - think Snap and Twitter (both founder led companies which are struggling to attract new users) which have been trying with all their might…
Plus, as you said, the company hasn’t even begun monetising Whatsapp and Messenger yet!
Anything can happen, but I think Facebook should continue to perform well for at least another 3-4 years and all we can do is keep our eyes and ears open.
Due to my risk management rules, I don’t invest more than 5% in any company (been around for too long and seen too many scams/accounting scandals/ management mis-steps etc) so won’t be adding more. However, if I didn’t have this rule, I’d be investing more at these levels.
Best,
GM
I don’t use it but may have to get on it for work project. I see no one leaving. And think we hit peak negativity when Business Insider ran article criticizing FB engineer for going barefoot in restroom then going in cafeteria. If they survive all this bad news, they can still be double, triple from here over time. Hard to fathom mass exodus at this point. And if is one we’ll see it coming. But is this really a Saulinian Fast Growth stock?
But is this really a Saulinian Fast Growth stock?
It is growing revenue at greater than 30% with op margins over 40%. I think Saul started a few small positions in FB over time, but never got into it in a major way, but he has also never objected to it or similar types of stocks being discussed here. If this doesn’t meet the “Saulinian” threshold we are really starting to limit what can and cannot be discussed here.
Matt
Long FB
I’m all for it!
I happen to think Netflix still has a lot of room to run, and massive moat. I just have held off talking about it due to sheer size.
Thanks Matt.
I bought FB IPO at 38 and then painfully bought all the way down to 17. At the time the ananlysis was that FB could never monetize their business.
I sold when I watched the Frontline report on all their issues this past summer, not wanting to hold into what I felt was a disaster waiting to happen.
What this past quarter is proving is that in the worst of time for this company, they can still perform.
That’s a big deal. I started a position this morning and will build it back up to a core position over then next month or so.
Chris