Facebook Inc Earnings Model (Jani)
Author: Ameel Jani, Published: July 28, 2020 8:30pm, Category: Earnings Preview (Prior to the 2Q2019 earnings release)
Summary of Model: I have completed/helped modify an earnings model for Facebook from the 2nd Quarter of 2020 through the 4th Quarter of 2021 through the Gutenberg Research Intern Program. I believe that COVID-19 will continue to be a major problem/have a major impact in terms of lockdowns and infections in the US and Canada region through the end of 2020 and into the first quarter of 2021. I also believe that the pandemic will continue to have a major impact in Europe through Q3 of 2020. Looking at current trends, I also believe that the virus has been largely contained in the Asia/Pacific Region (major countries there such as Japan, China, South Korea, and New Zealand have already mostly reopened) and will have little impact beyond Q2 of 2020. Finally, in terms of the virus and looking at timetables for a potential vaccine, I believe that the coronavirus pandemic will have mostly subsided in all regions by Q2 of 2021.
Based on information presented in the Facebook earnings calls and presentations, I think that the virus will have the effect of increasing MAU's as more people are encouraged to stay at home but reducing ARPU's as overall economic activity reduces there in the regions which it is epidemic in. In terms of non-coronavirus related news, I believe that the recent ad boycotts against Facebook will contribute to reducing APRU's in the US/Canada and Europe regions through the rest of 2020 and that Facebook's new partnership with Jio Platforms as well as its increased investment into secondary apps such as Instagram and Whatsapp will contribute to increasing its ARPU and MAU in the Asia-Pacific and "Rest of the World" regions into 2021.
Based on the earnings conference calls, I also included the assumptions that its cost of goods sold will be slightly lower than past quarters and that its operating costs (especially its G&A as a percentage of revenue) will be higher than normal due to payouts from the FTIC settlement in 2020 and focus on VR/Oculus development in 2020 as well as 2021.
When including all of these assumptions into the model, the profit came out to be slightly larger than the consensus estimates through 2020 and 2021, largely due to increases in revenue related to increases in MAU's and substantial increases in both MAU's and APRU's in the Asia-Pacific region overwhelming costs within management's guidance for 2020.
Based on information presented in the Facebook earnings calls and presentations, I think that the virus will have the effect of increasing MAU's as more people are encouraged to stay at home but reducing ARPU's as overall economic activity reduces there in the regions which it is epidemic in. In terms of non-coronavirus related news, I believe that the recent ad boycotts against Facebook will contribute to reducing APRU's in the US/Canada and Europe regions through the rest of 2020 and that Facebook's new partnership with Jio Platforms as well as its increased investment into secondary apps such as Instagram and Whatsapp will contribute to increasing its ARPU and MAU in the Asia-Pacific and "Rest of the World" regions into 2021.
Based on the earnings conference calls, I also included the assumptions that its cost of goods sold will be slightly lower than past quarters and that its operating costs (especially its G&A as a percentage of revenue) will be higher than normal due to payouts from the FTIC settlement in 2020 and focus on VR/Oculus development in 2020 as well as 2021.
When including all of these assumptions into the model, the profit came out to be slightly larger than the consensus estimates through 2020 and 2021, largely due to increases in revenue related to increases in MAU's and substantial increases in both MAU's and APRU's in the Asia-Pacific region overwhelming costs within management's guidance for 2020.
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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.