North America

Earnings Preview: Facebook Q1 2018 (FB)

By: Craig Bowles

Overview

Facebook, Inc. (FB) is slated to report 1Q 2018 earnings after the bell on Wednesday, April 25th. The actual results are expected to come through at approximately 4:05 p.m. ET with a conference call to follow at 5:00 p.m. available at Facebook Investor Relations.  The social networking company is a component of the S&P 500 and NASDAQ 100. Shareholders approved a 3-for-1 split for Facebook stock split on June 20, 2016 but that proposal was withdrawn in favor of issuing a new class of non-voting shares.

Outliers & Strategy

Key measures:

  • Non-GAAP Earnings Per Share (EPS): Analysts expect $1.36 (range $1.07 to $1.58). (Source: Yahoo! Finance) Consensus was $1.24 three months ago.
  • Revenues: Analysts expect an increase of 42.1% y/y to $11.41 bln (range $10.59 bln to $11.83 bln).
  • Monthly Active Users: Four qtr average growth of 16.3% y/y would be 2.257 bln.
  • Daily Active Users: Four qtr average growth of 16.0% y/y would be 1.485 bln.
  • Facebook’s P/E is 30.5; P/B 6.4; P/S 12.1; P/CF 20.1. Given slower expectations for revenue growth, a P/S closer to 6 would be needed to become attractive for value investors.
  • Analysts view of Facebook with 43 Buy, 2 Hold, and 1 (2 last qtr) Sell ratings. (source: MarketBeat.com)
  • Insiders have sold a net 5,883,160 shares in the last three months and a net 14,008,000 shares in the past year. (source: NASDAQ.com)
  • Facebook shares have a 1-day average price change on earnings of 3.11%. Options are pricing in an implied move of 3.93%.

Recent News

  • 4/18: Facebook to put 1.5 billion users out of reach of new EU privacy law, according to a post on Reuters.com.
  • 4/18: Goldman noted that the changes in European regulation could trim Facebook’s company-wide revenue by 7 percent. That would come from a 10 percent decline in time spent on Facebook in Europe, and a 20 percent drop in the price advertisers would be willing to pay if their messages were less targeted because fewer customers are willing to let their data be shared, according to a post on CNBC.com.
  • 4/17: Facebook’s CEO Mark Zuckerberg’s compensation rose 53.5% to $8.9 million in 2017. The median pay at Facebook is more than $240,000 a year, according to a post on Businessinsider.com.
  • 4/16: Blackrock’s largest equity fund, Global Allocation, took advantage of Facebook’s privacy scandal and more than 11% pullback to make the stock their sixth largest holding (up from 16th), according to a post on Reuters.com.
  • 4/13: The EU is planning to intensify the investigation process related to “harvesting of personal information,” according to a post on Zack’s.com.
  • 4/12: GBH Insights speculated that Facebook may lose $1 billion to $2 billion in advertising revenue as a result of the privacy scandal and a user survey suggests “about 15 percent of users” have decided to disengage from the platform, according to a post on CNBC.com.
  • 4/04: Morgan Stanley has an Overweight rating on Facebook despite reducing 2018-19 ad revenue by 2-3%. Discussions with top advertisers suggests they are not meaningfully reducing their Facebook spending, according to a post on U.S. News & World Report.

Summary

Facebook’s daily average users in North America declined for the first time ever in Q4 and the privacy problems around selling user data could weigh on future quarters. European regulations that limit what Facebook can do with user data begin on May 25. Analyst bullishness remains impressive despite their slowing growth expectations. Instagram, Messenger, and Facebook Watch are expected to drive Facebook’s next growth spurt. Advertising revenue has been growing at an over 40% rate and are expected to suffer only slightly with their top advertisers. The lack of teen interest is similar as with Twitter and that continues to be a worry. Insider selling remains at increased levels similar to last quarter. The company has beaten and missed estimates by an average of 27c the past four quarters. Estimize consensus for Non-GAAP EPS of $1.46 on revenue of $11.541 bln compares to analyst consensus of $1.36 on revenue of $11.41 bln. Traders also focus on the “user” data which has shown slower growth the past year.

 

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