Facebook FB is reporting its Q1 earnings after market-close on Wednesday, April 24th. They are expected to report an EPS of $1.65 which would represent a 2.3% decline from Q1 2018. FB is estimated to report $15 billion in quarterly revenue on Wednesday which would illustrate 31% YoY growth. FB has had solid earnings in the previous two quarters showing double digit earnings beats and a corresponding price increase of 6.8% & 15.6% respectively.
FB has consistently been able to grow its core user base with 1.5 billion daily active users and 2.3 billion monthly active users (this data is purely Facebook not including Instagram or WhatsApp). This is an astounding figure considering that only 3.2 billion people on Earth have access to the internet. That means that 72% of humans with internet access will check their Facebook at least once a month and 47% are using it daily. You would think the user growth would plateau when they have almost reached their entire reachable market, but their user base is still quickly expanding in the Asian-Pacific regions as well as developing countries across the world. As more people get access to internet, the total reachable market will continue to grow.
Facebook has been able to double its revenue over the past two years, further monetizing its platforms. With FB’s extensive user data they are able to tailor ads for individual users based on search and consumption patterns. The average revenue per users (ARPU) was $24.96 for 2018 representing a 24% expansion YoY. The most significant portion of FB’s revenue comes from the US and Canada which makes up about 50% of revenues but only represents 12% of Facebook’s total daily users. ARPU for North America was $111.97 which was a 33% jump from 2017.
There is still a lot of opportunity for FB to further monetize its users outside of North America and with consistent user growth, FB’s future outlook appears to be positive.
FB owns the most preferred messaging app in the world today, WhatsApp. Facebook also owns Instagram, a must have social media platform with over 1 billion active monthly users, having doubled over the past 2 years. Instagram has gained popularity because of its simplicity, aesthetically pleasing and user-friendly platform. Facebook originally bought Instagram for $1 billion back in 2013 and the company is now estimated to be worth over $100 billion today, a very savvy acquisition.
Facebook is operating in a very competitive space but they seem to be able to stay ahead of an endlessly shifting curve. Facebook and Instagram users continue to grow as other social media platforms seem to be hitting a plateau, such as Twitter TWTR and Snapchat SNAP who both saw user declines in recent quarters.
FB is currently trading at a favorable multiples in its shift from a young growth stock to an established value stock with a 22x forward P/E. The company is still growing like a young start-up though with expected revenue growth being over 20% for both 2019 and 2020, according to sell-side analysts. This could be an opportunity to get into a perpetually growing FAANG stock that’s still 17% off its high.
When reviewing FB’s earnings that will be released after market close on Wednesday, keep an eye on monthly active users as well as management’s guidance and sentiment on the ability to further monetize the Asian-Pacific & developing markets. Considering FB’s previous 2 earnings beats, this negative growth EPS estimate might be a little conservative and a potential earnings surprise could have a substantial material effect on FB to the upside.
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