Facebook Quarterly Update

Investment Analysis Clubs Saul’s Investing Discussions
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FB just reported another awesome quarter. Shares are up about 2.5% in AH trading.

Facebook reported quarterly earnings that beat analysts’ estimates on Wednesday, and revenue that topped expectations, as grew ad revenue 53 percent in a quarter.

…

Facebook’s ad business zoomed higher, as retailers poured money into snagging customers during the busy holiday shopping season. Only Google rivals Facebook when it comes to digital advertising dominance.

But at the same time, Facebook’s virtual reality company, Oculus, is on the hook for $500 million after losing a key lawsuit.

The results come after a volatile year for Mark Zuckerberg’s social network, which despite its gargantuan size, has managed to add more users at a rapid clip. The company added 17 percent more monthly users from a year ago, and 18 percent more daily users.

“Our business did well in 2016, but we have a lot of work ahead to help bring people together,” Zuckerberg said in a statement.

From http://www.cnbc.com/2017/02/01/facebook-earnings-q4-2016.htm…

Here’s a look at some of the numbers:


Revenue (billions)	Q1		Q2		Q3		Q4
2013			1.458		1.813		2.016		2.585
2014			2.502		2.910		3.203		3.851
2015			3.543		4.042		4.501		5.841
2016			5.382		6.436		7.011		8.809

EPS (non-GAAP)	        Q1		Q2		Q3		Q4
2013			0.12		0.19		0.27		0.32
2014			0.35		0.43		0.43		0.54
2015			0.42		0.50		0.57		0.79
2016			0.77		0.97		1.09		1.41

EPS (GAAP)		Q1		Q2		Q3		Q4
2014							0.30		0.25
2015			0.18		0.25		0.31		0.54
2016			0.52		0.71		0.82		1.21

2016 Q4 Earnings (Current):

Revenue Growth (billions)
2015 Q4 TTM Revenue = 17.927
2016 Q4 TTM Revenue = 27.638
Year Over Year TTM Revenue Growth = 54.2%, previous quarter 54.8%

EPS Growth (GAAP)
2015 Q4 TTM Earnings = 1.28
2016 Q4 TTM Earnings = 3.26
Year Over Year TTM GAAP EPS Growth = 155%, previous quarter 162%
GAAP P/E (Check Current Price) = 133.24/3.26 = 40.87
GAAP 1YPEG = 40.87/155 = 0.26

EPS Growth (non-GAAP)
2015 Q4 TTM Earnings = 2.28
2016 Q4 TTM Earnings = 4.24
Year Over Year TTM non-GAAP EPS Growth = 86%, previous quarter 78.3%
Non-GAAP P/E (Check Current Price) = 133.24/4.24 = 31.42
Non-GAAP 1YPEG = 31.42/86 = 0.37

Here are some of the other quarter’s highlights:

DAUs (Daily Active Users): 1.23B, 18% YOY
Mobile DAUs: 1.15B, +23% YOY
MAUs (monthly active users): B, +% YOY
Mobile MAUs: 1.86B, +17% YOY
Cash and cash equivalents: $29.45B, previous quarter $26.14B, +12.66% sequentially

Matt
Long FB
MasterCard (MA), Nestle (NSRGY), PayPal (PYPL), and Verizon (VZ) Ticker Guide
See all my holdings at http://my.fool.com/profile/CMFCochrane/info.aspx

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Thanks again for the awesome write-up, Matt, so glad I’ve been investing in this one from the beginning!

Each quarter gets better and better, absolutely amazing for a company their size! And they still have more platforms to monetize.

People wouldn’t invest before because the valuation was too high with a sky high P/E and no significant earnings. Now the P/E is down to a reasonable 31 (I say reasonable because EPS growth was 86%, up from 78%). What’s the excuse this time?

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What’s the excuse this time?

BTW, that’s a rhetorical question I asked, I wasn’t questioning anyone on this board as to why they’re not invested in FB, everyone picks their own highest conviction stocks.

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What’s the excuse this time?

BTW, that’s a rhetorical question I asked, I wasn’t questioning anyone on this board as to why they’re not invested in FB, everyone picks their own highest conviction stocks.

I don’t think anyone assumed you meant any offense Foodles. I was one of those until recently. Glad I finally took the plunge with FB.

Bear

PS Matt, thanks once again for providing key numbers in practically real time!

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What’s the excuse this time?

great question!

this is a company who’s sales growth (54%) is bigger than it’s pe (30%). this is a classic Saul stock if i have ever seen one. why it got snubbed here or so long is inexplicable.

#6

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in the spirit being espounded by ‘buyandwin’ to have the courage to reallocate investable funds from your weakest to your stringest holding, I am going to bite the bullet and move what is left of my CMG holding (on which I have all but given up) and reallocate to FB which, despite all the fears of advertising slowdown, I believe to be my favourite home for capital (after SHOP which is already a large holding)

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I agree with your commitment to sell your dogs and buy more FB, which has has a great run for me over the last few years.

The only thing: it scares me to buy at the all time highs, as it often seems to pull back a few percent (5-10%) after hitting the highs.

So - does anyone have any good ideas or approaches to get the optimum buy timing on a stock that seems to have a general “up” direction, but can be somewhat volatile? Especially considering that the overall market is continuing to trend higher, and it seems we are due for some kind of correction.

Thanks,
Jon

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in 5 years’ time when FB would have doubled from here, I would not be overly concerned about a minor pull back. I have 10% in cash for those pull backs

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I’m sure Mr Zuckerberg will be happy to know that you are willing to invest additional funds in FB for no dividend income. . Any monetary gain will have to come from a sale of FB and I am sure the IRS and the STATE will be glad to accept 30% or 40% or more of the gains you had. In addition you had to make the correct decisions as to when to buy and then when to sell. And if you did all those things at the right time, you have to now find another investment to do as well or better. Where does the portfolio growth come from for your retirement

By leaning towards income I have to make less decisions (less chance of making mistakes) less trading (lower transaction fees and taxes to pay) leaves more capital working for me. As the income rises prices will tend to rise (But it isn’t necessary) and the portfolio will grow.

b&w

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Jon,

You could consider buying a small position, and add to it at better value points. This way if it continues up you have a growing position. If it drops for what you deem no reason, it is an opportunity to add to your position if appropriate.

Better value points are not necessarily stock price going down. If revenue, EPS, balance sheet, all improve and stock price goes up but to lesser extent, this is a better value point as well.

Hope this helps, or gives you something to think about.

Kevin

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So - does anyone have any good ideas or approaches to get the optimum buy timing on a stock that seems to have a general “up” direction, but can be somewhat volatile? Especially considering that the overall market is continuing to trend higher, and it seems we are due for some kind of correction.

Right now FB is selling for around $131 per share.

I would start by figuring what my average cost basis is to find my capital gain to determine what I would have per share AFTER TAXES IF I SOLD. That is what MY FB stock is worth to me—Not the $131 it is selling for because I can’t get $131 to put in my pocket. the tax man won’t let me

b&w

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why it got snubbed here or so long is inexplicable.

It hasn’t been snubbed. But when a company is doing so well, what is there to talk about.

Andy
In FB since IPO and holding on.

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By leaning towards income I have to make less decisions (less chance of making mistakes) less trading (lower transaction fees and taxes to pay) leaves more capital working for me. As the income rises prices will tend to rise (But it isn’t necessary) and the portfolio will grow.

b&w,

I think most of us understand the benefits of an income portfolio, as you very clearly point out above. What I’m guessing most of us don’t know is how to choose income vehicles to invest in since most, if not all of our portfolios are geared more toward growth stocks (if we’re on this board). You make it sound very simple (which I know it is not), and like your stocks only go up and income only increases year after year (which can’t be the case).

As Bear pointed out, you keep mentioning to sell the worst, and buy the best in your portfolio, that will help get you to your goals. Probably good advice for growth stocks, too, but like I said, most here probably don’t have any “good” income vehicles currently in our portfolio, and don’t want to just blindly buy ones we’ve never heard of that are in your portfolio without knowing how to evaluate those.

Understand your aversion to wanting to take on an additional job, by starting a blog or some other leaning vehicle for people to try to duplicate your success (as Saul is trying to do here), and don’t fault you for that.

But the problem is this discussion of an income portfolio doesn’t belong here, yet there seems to be interest from more than a few visitors here as to how you have done what you did and attained the results you have.

Again, the general, overall statements of the benefits of an income portfolio don’t help anyone actually know what to do to create one. Perhaps you would be willing to create something like a “knowledge base” document (as Saul has done) that is a good starting point that details your thoughts and recommended actions for analyzing and investing in income vehicles in the market.

Again, all this doesn’t belong on this board, but I think many would be interested if you would consider doing something like this.

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I agree with your commitment to sell your dogs and buy more FB, which has has a great run for me over the last few years. The only thing: it scares me to buy at the all time highs, as it often seems to pull back a few percent (5-10%) after hitting the highs. So - does anyone have any good ideas or approaches to get the optimum buy timing on a stock that seems to have a general “up” direction, but can be somewhat volatile?

this is admittedly harder then it sounds, but:

*stop looking at the stock price as if it means anything. It doesn’t, except to a buyer or seller at a specific point in time
*instead, convert all stock prices to valuations - at a minimum, market value of the company and PE ratio based on earnings (or Price to Sales if you go with those sorts of companies, but as CM noted this is a different and more volatile way to value anything)
*come up with near term and further term estimates based on earnings. You can do this with simple projections (what is, say, the EPS going to look like if the earnings grow by 15%; or use Value Line; or use analyst estimates you trust)
*this transitions you from taking a short term view, worrying about pullbacks and such, to a longer term vision. But it is hard, and you need to evaluate the ‘story’ behind that business each time you do an evaluation.

What I’ve often done with stocks - not always, but when I’ve been smart - is use a ‘core’ holding and a ‘trading’ holding. In a good holding, assuming you know how to define a good holding (generally one that has a high return on equity and generates significant free cash flow and doesn’t do stupid things with the resulting cash), you want to be biased on simply holding it. But if you’ve got the trading mantra, if you think that 5% or 10% means something beyond total random movement, then you can use a ‘trading’ position in the same stock. That way, you can indulge the urge to view random price movements without it interfering with your investments.

Bottom line: you’ve got to convince yourself that 5% or 10% moves are mostly irrelevant - unless you want to take advantage of them.

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one other minor thing:

*some won’t like this but Cramer’s Mad Money show does a good job tracking these sort of smaller price moves. Late last year Cramer kept talking about a rotation out of high growth stocks occurring at the end of the year as there was a rotation to more cyclical type stuff - in theory based on hoped for economic policies of the new administration. Now that there is more doubt about future progress (the future is harder to project that it seems!), investors have reverted back to judging companies by earnings again and most of the high growth names are putting up really strong numbers.

Course, for all the benefit of watching Cramer on a daily basis, he will eventually drive you completely loopy and insane (cause he makes contrary calls all the time, even back to back in daily shows, and he also makes you feel like you should have been right on everything), so I’m not sure anybody ought to watch unless they can do it without being emotionally impacted. I LOVE Cramer (cause he is in tune with the daily gyrations in the market and knows a little about a whole lot of companies and does he show because he loves to do it) but take the occasional break from him…

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You make it sound very simple (which I know it is not), and like your stocks only go up and income only increases year after year (which can’t be the case).

Why not?

http://www.dividend.com/dividend-stocks/25-year-dividend-inc…

I’ll bet you even heard of most if not all of these stocks.

I read somewhere that over 40% of all portfolio growth comes from income and the balance is from capital gains.

So if you are seeking a “growth portfolio” you are eliminating 40% of the growth by not incorporating income in your goal. You also are anticipating that when you need the fruits of your investing there will be a bull market and your stocks will be booming and it won’t be at a bottom like 2009 or mid 2014-15.
Income is much more stable than stock prices over an extended timeframe. Most people back away from stocks due to a rapid decline in share price (bear market) than a decline in dividend.

b&w

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…I am sure the IRS and the STATE will be glad to accept 30% or 40% or more of the gains you had…

Well, most of us target long term holdings, so we’re looking at capital gains tax rates. Even at the highest income levels in the most expensive state (CA) that’s 20% federal plus the 3.8% investment income tax (we’re talking exceeding thresholds here) plus another 13.3% CA state. That’s still below 40%, and that’s the worst case (should we all be so lucky!).

The capital gains federal tax could easily be only 15% for many people, with less than another 5% tax from your state (see http://www.fool.com/personal-finance/taxes/2014/10/04/the-st…), for an effective tax rate of under 20%.

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I understand the point being made by buyandwin and I do indeed have a portion of my portfolio dedicated to income. As I don’t have the intricate knowledge of income-focused equities, I simply have an allocation in HDV, a high dividend ETF drawing from SnP 500 holdings

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most here probably don’t have any “good” income vehicles currently in our portfolio, and don’t want to just blindly buy ones we’ve never heard of

Yes, yes, and double yes.

But the problem is this discussion of an income portfolio doesn’t belong here

This, I disagree with. First of all, Saul has encouraged others (like myself) to discuss their portfolios. He also is interested in stocks primarily for growth, but that doesn’t mean he’s never owned a dividend stock. They can grow too.

B&W, why don’t you take one of your stocks (maybe HASI, since some of us have expressed interest in it), and tell us why you like the company? What is their strategy? How do they make money? Who are their competitors? Etc.

That kind of discussion absolutely belongs on Saul’s board.

Thanks,
Bear

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most here probably don’t have any “good” income vehicles currently in our portfolio, and don’t want to just blindly buy ones we’ve never heard of

Yes, yes, and double yes.

I don’t want you to buy stocks you never heard of. I have disclosed all the securities in my portfolio so they are readily available for all to investigate to your hearts content. I told you from day 1 there is no magic in my portfolio and that everyone would be better off if they upgraded their own portfolio. I also said that would create value and growth in their own portfolio. people started asking questions and I tried to answer them as best as I could. If someone is interested in one or more of the stocks in my portfolio THAT I TOLD YOU NOT TO BUY – then do some DD on your part to seek out the info you want.

Many here appear to be interested in HASI. That’s great. I bought it because it seemed to suit my purposes for an income investment. However it never was then and it isn’t now A Sacred Cow. As long as it suits my purposes it remains and has the opportunity to be enlarged, and if it doesn’t suit my expectations it can be eliminated.
In the spirit of full disclosure I listed my entire portfolio and the 13 1/2 year results of that portfolio. It created interest and could be followed up if one so desires.

Frankly my problem is that I’m not a teacher, so please don’t be offended.
respectfully submitted
b&w

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