Facebook Inc Earnings Model (Akkapeddi)
Author: Shanmukha Akkapeddi, Published: July 28, 2020 6:00pm, Category: Earnings Preview (Prior to the 2Q2019 earnings release)
Summary of Model: When developing my model, I wanted to adjust for the impact of both societal and political factors that may impact Facebook’s revenue projections for 2Q20 and beyond. With the effects of the coronavirus pandemic, an upcoming presidential election, and a multitude of internal investments and projects, Facebook seems to be in a favorable position for long term growth.
The current pandemic has been beneficial to Facebook in terms of monthly active users with many people staying home due to social distancing orders. Although the severity varies across the world, Facebook has been able to capitalize and attract new and returning users.
With recent investments Jio, an Indian telecommunications company, I expect strong growth in user engagement in the Asia Pacific region. The potential downfall of Tik Tok also provides a new source of revenue for the company. With increasing talks of the app being banned in multiple countries due to potential surveillance problems has enabled Facebook to enter the market with its own Instagram Reels.
One of the biggest problems the company is also facing is a decrease in average revenue per user. This is due to a) companies advertising less due to the pandemic, and b) over 500 companies and counting FB over its stance on hate speech. However, I expect companies to eventually start using virtual advertising tactics again in 2020, which Facebook will undoubtedly benefit from. Especially with an upcoming election, Facebook will be potentially able to regain lost advertising revenue.
With strong management and highly consumed products, Facebook proves to be a good solid investment. Due to these factors, I am slightly bullish on Facebook going forward.
The current pandemic has been beneficial to Facebook in terms of monthly active users with many people staying home due to social distancing orders. Although the severity varies across the world, Facebook has been able to capitalize and attract new and returning users.
With recent investments Jio, an Indian telecommunications company, I expect strong growth in user engagement in the Asia Pacific region. The potential downfall of Tik Tok also provides a new source of revenue for the company. With increasing talks of the app being banned in multiple countries due to potential surveillance problems has enabled Facebook to enter the market with its own Instagram Reels.
One of the biggest problems the company is also facing is a decrease in average revenue per user. This is due to a) companies advertising less due to the pandemic, and b) over 500 companies and counting FB over its stance on hate speech. However, I expect companies to eventually start using virtual advertising tactics again in 2020, which Facebook will undoubtedly benefit from. Especially with an upcoming election, Facebook will be potentially able to regain lost advertising revenue.
With strong management and highly consumed products, Facebook proves to be a good solid investment. Due to these factors, I am slightly bullish on Facebook going forward.
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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.