Facebook Reports 2018 Q3 Earnings

Investment Analysis Clubs Saul’s Investing Discussions
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Shares were down then up then down then up in AH trading…Right now, they’re up but who knows how that will go tomorrow. Revenue rose to $13.73B, a 33% YOY increase, while diluted EPS grew to $1.76, an 11% YOY increase. Earnings growth definitely took a hit from the increased expenses the company forecast last quarter. Total costs and expenses were up 53% YOY. Still, operating margin was 42%. For expenses rising as fast as they are, that seems fairly stellar.

After alerting investors to increasing costs and slowing growth, Facebook reported profit that topped expectations and added additional users despite a difficult year for the social-media giant. The earnings come as the company navigates a harsh year in which it has had to fend off threats of regulation and deal with a massive privacy breach and public discontent over its ability to curb misinformation before another U.S. election.

“We have a long road ahead to prevent these type of attacks in the future,” Mark Zuckerberg told an earnings call of the hacking involving 29 million user accounts late last month. “The upcoming election will be a real test of the protections we’ve put in place,” he added.

From https://www.cbsnews.com/news/facebook-q3-earnings-mixed-resu…

From the earnings press release:

“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.”

From https://investor.fb.com/investor-news/press-release-details/…

Here’s a brief look at 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
2017			8.032		9.321		10.33		12.78
2018			11.97		13.23		13.73

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

2018 Q3 Earnings (Current):

Revenue Growth (billions)
2017 Q3 TTM Revenue = 36.492
2018 Q3 TTM Revenue = 51.71
YOY TTM Revenue Growth = 41.7%, previous quarter 45.6%

EPS Growth (Diluted)
2017 Q3 TTM Earnings = 5.16
2018 Q3 TTM Earnings = 7.40
YOY TTM EPS Growth = 43.4%, previous quarter 61.7%

P/E (Check Current Price) = 146.22/7.40 = 19.76

Trailing 1Y PEG = 19.76/43.4 = 0.46

Here are some of the other quarter’s highlights:

DAUs (daily active users): 1.49B, +9% YOY
MAUs (monthly active users): 2.27B, +10% YOY
Cash and cash equivalents: $41.21B, previous quarter $42.31B
Cap Ex: $3.34B, previous quarter $3.46B, up 23.1% sequentially
Mobile advertising revenue: Made up 92% of all revenue, up from 88% in prior year’s quarter
Head count: 33,606 45% increase YOY

Yes, I get this is a severely beat down stock and there’s a lot of pressures facing it. Earnings growth will be much slower this year because of the hiring and additional expenses. I get all that. But, for all of its problems, it is growing revenue by 33% and sports an op margin of 42% and trades at a P/E ratio of under 20. I’m fine with holding here.

Matt
Long FB (but suspended my account in 2012 and haven’t used any of its platforms since)
Intuit (INTU), MasterCard (MA), PayPal (PYPL), and Square (SQ) Ticker Guide
See all my holdings at http://my.fool.com/profile/TMFCochrane/info.aspx

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I thought the tone on the call was generally positive and realistic. Despite all the negative news swirling I found it surprising that they still added users QoQ. Even in USA, Europe they didn’t loose users, one would have thought people would be leaving in droves. If you count the changed methodology they added slightly more users this Q (see fine print in slide deck slide 2, 3). There was a lot of talk of finding ways to monetize stories, videos in fb, instagram as opposed to feeds. Messaging, whatsapp payment, ads coming next year. So, this will cause growth to slow down to about 26% next Q. I think growth going fwd will depend on how well they can monetize other platforms and that is the key to see if it can maintain a 20%+ rev growth IMO and of course the resolution of the security issue. They projected 35% operating margin next year and stable going forward. Investing a lot in data centers. Stock is still close to 52 wk lows and below 200 day MA. I am not sure what I will do. Every time I think I should sell my small position (2%) I look at its moat and its pretty much unchallenged position in social media. BTW, they are not getting into ecommerce so no concern for SHOP. BTW GAAP EPS is 6.63, so P/E of around 22.6. Pretty low valuation for the growth.

https://s21.q4cdn.com/399680738/files/doc_financials/2018/Q3…

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Thanks Matt.

I first bought at the IPO price. Bought all the way down to 17.

Finally sold at 150 last week and will unwind the rest most likely first week of January.

I’m also suspending my Facebook account after watching the PBS Frontline two part investigative series that aired this week.

I may change my mind, but I finally understand all the harm Facebook has cause politically around the world. I also don’t like the big brother aspect of social media in general.

For me the decision is much easier as an investment when Zuckerburg talked about all the challenges facing the company going forward on the conference call.

Chris

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Yes, I sold all FB a few months ago, when I saw some of their practices I didn’t like.

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Strong revenue growth. Is it accelerating? How does this affect TTD if so? They have benefited from advertisers not wanting to be associated with the stigma of advertising on Facebook. That stigma would go away over time as people forget the Cambridge analytica fiasco.

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Yes, I get this is a severely beat down stock and there’s a lot of pressures facing it. Earnings growth will be much slower this year because of the hiring and additional expenses. I get all that. But, for all of its problems, it is growing revenue by 33% and sports an op margin of 42% and trades at a P/E ratio of under 20. I’m fine with holding here.

I still hold and added recently. I may add more. It’s a small position for me but a higher conviction one. For all the “controversy,” FB is doing fine. It’s still top dog among social media companies and has a solid moat. It’s leveraging its platform well. Now, it’s trading at a very reasonable valuation.

I understand the consternation about some of FB’s practices but I also think that it’s more about the political environment and the evolution of social media rather than FB in particular. In the short term, it’s a no-win situation and they will have to adapt, hopefully while preserving free expression as much as possible. They will need to work hard to fix any security issues and they are doing so. In the long term, FB should be fine.

Dave

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I’m fine with F B as well. Understanding their previous stand offish (conveniently financially beneficial) attitude about the manipulations in political matters, they at least now seem to genuinely aspire to leave the misuse of the past behind, and are spending real money to make that happen.

That will possibly make the company’s products at least somewhat sanitized n the future, which may make for a favorable contrast to other more frenzied sites.