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Q2 earnings have proved to be positive thus far with the S&P 500 and NASDAQ index both riding on the tail of their all-time highs. Facebook released a positive earnings picture to shareholders after the bell on Wednesday, but traders and investors have been bidding shares lower on soft H2 guidance due to ad-targeting policy concerns.
The Business
2.1 billion people around the world use one of Facebook’s family of services daily, while 2.7 billion utilize one of these at least once a month, whether it be Instagram, WhatsApp, Messenger, or Facebook. Facebook’s daily active user (DAU) and monthly active user (MAU) expansion have been slowing down in recent quarters with only 8% year-over-year growth in Q2 compared to the 11% in Q2 last year and the 14% in 2017.
This slowdown in user growth was inevitable, with roughly 63% of the internet accessing world using at least one of Facebook’s services at a minimum of once a month. User growth will soon be a product of world population growth.
Facebook has been able to partially offset this slowing user growth trend with the appreciation of average revenue per user (ARPU), although policy headwinds could negatively impact this growth with regulatory changes focused on targeted advertising. Below you can see a graphic provided by Facebook’s investor relations team illustrating the seasonally upward trend in ARPU.
Revenues are still demonstrating significant growth with Q2 posting a 27.6% advancement year-over-year. Facebook is expected to grow its topline by 25.5% this year and 21.8% in 2020.
Regulatory Run-In
The FTC slapped Facebook with a $5 billion civil penalty, the largest fine in the history of the agency. The fine was related to negligence with handling user data as well as ‘deceptive’ communication to consumers related to user data utilization. Along with the massive fine, the FTC required Facebook to implement new privacy processes to ensure that this misstep doesn’t occur again.
Facebook settled its debacle with the FTC this quarter with a total bill adding up to $5 billion. The company expensed $2 billion in Q2 while the other $3 billion was accounted for in Q1. This was a one-time none reoccurring fine, but the impact of the privacy and policy changes within Facebook remains to be seen. Future regulatory conflict is a concern to investors as policy-makers crackdown on tech companies.
Since the earnings report after the bell on the 24th of July, FB has slid over 3%. Shares are currently trading over 9% off its 52-week high.
FB is being valued at 24x forward P/E, which is on the lower side of the firm’s 5-year range of 60x to 17x. The downward trending P/E is expected for a company like Facebook, who has seen slowed growth as it becomes a mature and established firm.
Most sell-side analysts remain bullish on Facebook, with optimistic price targets ranging from $215-$265 (current priced at $198.80). Analysts have been raising EPS estimates over the past 30 days pushing FB into a Zacks Rank #2 (Buy).
Take Away
Regulatory overhang remains a concern for Facebook moving forward. The company’s growth is decelerating, and the reliance on ARPU for topline appreciation increases. If regulatory bodies inhibit Facebook’s ability to produce targeted advertisements, the company’s growth could be significantly hampered.
Analysts remain bullish on the stock and its momentum so far this year shows little signs of slowing down.
Biggest Tech Breakthrough in a Generation
Be among the early investors in the new type of device that experts say could impact society as much as the discovery of electricity. Current technology will soon be outdated and replaced by these new devices. In the process, it’s expected to create 22 million jobs and generate $12.3 trillion in activity.
A select few stocks could skyrocket the most as rollout accelerates for this new tech. Early investors could see gains similar to buying Microsoft in the 1990s. Zacks’ just-released special report reveals 7 stocks to watch. The report is only available for a limited time.
Image: Bigstock
Facebook's Q2 Earnings Review
Q2 earnings have proved to be positive thus far with the S&P 500 and NASDAQ index both riding on the tail of their all-time highs. Facebook released a positive earnings picture to shareholders after the bell on Wednesday, but traders and investors have been bidding shares lower on soft H2 guidance due to ad-targeting policy concerns.
The Business
2.1 billion people around the world use one of Facebook’s family of services daily, while 2.7 billion utilize one of these at least once a month, whether it be Instagram, WhatsApp, Messenger, or Facebook. Facebook’s daily active user (DAU) and monthly active user (MAU) expansion have been slowing down in recent quarters with only 8% year-over-year growth in Q2 compared to the 11% in Q2 last year and the 14% in 2017.
This slowdown in user growth was inevitable, with roughly 63% of the internet accessing world using at least one of Facebook’s services at a minimum of once a month. User growth will soon be a product of world population growth.
Facebook has been able to partially offset this slowing user growth trend with the appreciation of average revenue per user (ARPU), although policy headwinds could negatively impact this growth with regulatory changes focused on targeted advertising. Below you can see a graphic provided by Facebook’s investor relations team illustrating the seasonally upward trend in ARPU.
Revenues are still demonstrating significant growth with Q2 posting a 27.6% advancement year-over-year. Facebook is expected to grow its topline by 25.5% this year and 21.8% in 2020.
Regulatory Run-In
The FTC slapped Facebook with a $5 billion civil penalty, the largest fine in the history of the agency. The fine was related to negligence with handling user data as well as ‘deceptive’ communication to consumers related to user data utilization. Along with the massive fine, the FTC required Facebook to implement new privacy processes to ensure that this misstep doesn’t occur again.
Facebook settled its debacle with the FTC this quarter with a total bill adding up to $5 billion. The company expensed $2 billion in Q2 while the other $3 billion was accounted for in Q1. This was a one-time none reoccurring fine, but the impact of the privacy and policy changes within Facebook remains to be seen. Future regulatory conflict is a concern to investors as policy-makers crackdown on tech companies.
Performance and Outlook
Facebook has rallied over 51% so far in 2019, outpacing the rest of FAANG (AMZN - Free Report) , (AAPL - Free Report) , (NFLX - Free Report) , (GOOGL - Free Report) which you can see below.
Since the earnings report after the bell on the 24th of July, FB has slid over 3%. Shares are currently trading over 9% off its 52-week high.
FB is being valued at 24x forward P/E, which is on the lower side of the firm’s 5-year range of 60x to 17x. The downward trending P/E is expected for a company like Facebook, who has seen slowed growth as it becomes a mature and established firm.
Most sell-side analysts remain bullish on Facebook, with optimistic price targets ranging from $215-$265 (current priced at $198.80). Analysts have been raising EPS estimates over the past 30 days pushing FB into a Zacks Rank #2 (Buy).
Take Away
Regulatory overhang remains a concern for Facebook moving forward. The company’s growth is decelerating, and the reliance on ARPU for topline appreciation increases. If regulatory bodies inhibit Facebook’s ability to produce targeted advertisements, the company’s growth could be significantly hampered.
Analysts remain bullish on the stock and its momentum so far this year shows little signs of slowing down.
Biggest Tech Breakthrough in a Generation
Be among the early investors in the new type of device that experts say could impact society as much as the discovery of electricity. Current technology will soon be outdated and replaced by these new devices. In the process, it’s expected to create 22 million jobs and generate $12.3 trillion in activity.
A select few stocks could skyrocket the most as rollout accelerates for this new tech. Early investors could see gains similar to buying Microsoft in the 1990s. Zacks’ just-released special report reveals 7 stocks to watch. The report is only available for a limited time.
See 7 breakthrough stocks now>>