Facebook Inc Earnings Model (Chan)
Author: Shirley Chan, Published: July 28, 2020 6:16pm, Category: Earnings Preview (Prior to the 2Q2019 earnings release)
Summary of Model: FB’s main drivers to project future revenue in this model are Monthly Active User (MAU) growth rates and Average Revenue Per User (ARPU).
A key assumption is that the impact of COVID-19 will continue through 2020. After COVID-19 was announced as a global pandemic in mid-March, FB saw a surge in users across their products. I projected FB to have higher than usual MAU growth rates this quarter due to shelter-in place restrictions. As these restrictions are lifted, MAU growth rates will start to slow down. Taking the next COVID-19 outbreak into consideration, FB will have another high growth in MAUs this fall. I further projected that MAUs will stabilize in 2021 as conditions begin to improve.
Along with growing MAUs, FB saw a significant decline in ad revenue in March due to COVID-19. This impact was mitigated by factors such as growing ad demand in the gaming industry, allowing FB to achieve relative flat YoY ad revenue in April. Starting late June, however, FB has been facing ad boycotts from their top advertisers due to hate speech policies. As a result, I projected negative single-digit ARPU growth rates this quarter. I believe COVID-19 and ad boycotts will continue to affect ARPU for the rest of the year and stabilize in 2021.
Some other assumptions for the quarter or beyond include faster recovery of Asia Pacific regions, higher R&D expense to invest in user engagement and SMBs, higher marketing expenses to attract back ad customers, and higher G&A expenses to account for bad debt from COVID-19.
A key assumption is that the impact of COVID-19 will continue through 2020. After COVID-19 was announced as a global pandemic in mid-March, FB saw a surge in users across their products. I projected FB to have higher than usual MAU growth rates this quarter due to shelter-in place restrictions. As these restrictions are lifted, MAU growth rates will start to slow down. Taking the next COVID-19 outbreak into consideration, FB will have another high growth in MAUs this fall. I further projected that MAUs will stabilize in 2021 as conditions begin to improve.
Along with growing MAUs, FB saw a significant decline in ad revenue in March due to COVID-19. This impact was mitigated by factors such as growing ad demand in the gaming industry, allowing FB to achieve relative flat YoY ad revenue in April. Starting late June, however, FB has been facing ad boycotts from their top advertisers due to hate speech policies. As a result, I projected negative single-digit ARPU growth rates this quarter. I believe COVID-19 and ad boycotts will continue to affect ARPU for the rest of the year and stabilize in 2021.
Some other assumptions for the quarter or beyond include faster recovery of Asia Pacific regions, higher R&D expense to invest in user engagement and SMBs, higher marketing expenses to attract back ad customers, and higher G&A expenses to account for bad debt from COVID-19.
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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.