Facebook Inc Earnings Model (425)
Author: Gutenberg Contributor 425, Published: July 28, 2020 9:09pm, Category: Earnings Preview (Prior to the 2Q2019 earnings release)
Summary of Model: My model presents a slightly bullish view on Facebook. Due to the pandemic, I reasoned that more people would be using the company's products, increasing user growth rates.
I first increased interest and other income because it probably will be similar to the average from the past few quarters, and the second quarter of 2019 was 206, so I shifted the projections up a little bit. I increased the YOY growth rates in each region for the second quarter and then decreased them going forward because due to the pandemic, Facebook has most likely increased its monthly active users. I did the same thing for ARPU. Due to a growth in the number of monthly users, costs will increase which will, as a result, decrease the gross profit. Therefore, I decreased the gross margin. Due to COVID, R&D, marketing, and G&A expenses will more than likely decrease for this quarter and the next, which will also help balance out the total operating expenses to meet management's guidance.
I increased the effective tax rate because in Q1, management's guidance estimated that the rate would be in the high teens but it ended up being 30.2%. Thus, I stuck to management's guidance but increased the projected rate to 19.8%. Since the strength of the USD likely resulted in a slight headwind in European Average Revenue Per User, I used prior-year values to estimate the FX effect on revenue, slightly increasing the values. FB announced an increase of $10B in stock repurchase authorization in Q1, so I slightly increased the share repurchase amounts. I kept the share-based compensation relatively the same because over the years, these costs have remained relatively similar across quarters, and the pandemic would not have too much of an effect on these.
Thus, overall, I have a bullish outlook on this company, with an increase in revenue to $18.2 billion along with an EPS estimation of 1.56, slightly above analysts' predictions of 1.37. Moreover, I predict that over the next year, the share price of the company will relatively increase due to increased usage of social media and inventions of new platforms such as Instagram Reels. In this way, Facebook is a great company to invest in and a definite buy.
I first increased interest and other income because it probably will be similar to the average from the past few quarters, and the second quarter of 2019 was 206, so I shifted the projections up a little bit. I increased the YOY growth rates in each region for the second quarter and then decreased them going forward because due to the pandemic, Facebook has most likely increased its monthly active users. I did the same thing for ARPU. Due to a growth in the number of monthly users, costs will increase which will, as a result, decrease the gross profit. Therefore, I decreased the gross margin. Due to COVID, R&D, marketing, and G&A expenses will more than likely decrease for this quarter and the next, which will also help balance out the total operating expenses to meet management's guidance.
I increased the effective tax rate because in Q1, management's guidance estimated that the rate would be in the high teens but it ended up being 30.2%. Thus, I stuck to management's guidance but increased the projected rate to 19.8%. Since the strength of the USD likely resulted in a slight headwind in European Average Revenue Per User, I used prior-year values to estimate the FX effect on revenue, slightly increasing the values. FB announced an increase of $10B in stock repurchase authorization in Q1, so I slightly increased the share repurchase amounts. I kept the share-based compensation relatively the same because over the years, these costs have remained relatively similar across quarters, and the pandemic would not have too much of an effect on these.
Thus, overall, I have a bullish outlook on this company, with an increase in revenue to $18.2 billion along with an EPS estimation of 1.56, slightly above analysts' predictions of 1.37. Moreover, I predict that over the next year, the share price of the company will relatively increase due to increased usage of social media and inventions of new platforms such as Instagram Reels. In this way, Facebook is a great company to invest in and a definite buy.
| FB Earnings Model (Gutenberg User 425).xlsx |
Disclosure of Potential Conflicts of Interest: The author of this article/model has no financial investment or other conflict of interest related to the subject company or other companies discussed. Any views made or implied in the content represent the author’s opinions.