Facebook Inc Earnings Model (Khan)
Author: Mansoor Tariq Khan, Published: July 28, 2020 6:27pm, Category: Earnings Preview (Prior to the 2Q2019 earnings release)
Summary of Model: For the Q2 2020 and onwards for the year 2020, I forecast Facebook’s financial performance and as a result the stock price to be slightly bullish on a YoY basis while taking a small loss in revenue on a QoQ basis. The forecasted revenue for Q2 is $17.5B with a Diluted EPS of $1.43. My estimates are based on the following factors that I see affecting Facebook’s performance positively or negatively. Firstly, Monthly Active Users (MAU’s) across all regions except Asia-Pacific would see a lower positive growth in Q2 as compared to the spike seen in growth during Q1. Due to Facebook’s partnership with Jio in India to facilitate e-commerce activities for SMB’s and China’s increased activity in both the e-commerce and gaming sector, I forecast the MAU’s to grow by 13% as compared to the 11% growth in the first quarter in the Asia-Pacific region. The general positive growth in MAU’s for all the regions can also be attributed to the shelter-in restrictions placed due to COVID-19, allowing more people to use Facebook and its other social media platforms, WhatsApp and Instagram. As the social distancing SOP’s get relaxed, we see the MAU’s growth returning to their average rates seen in 2019.
Facebook’s major source of revenue, advertising, has been largely hit with the demand for advertisement diminishing. We have already seen the growth rate in Average Revenue per User (ARPU) halving in Q1 2020 on a QoQ basis. I see this trend continuing and the growth rate actually shrinking and going into negative for the second quarter with a total ARPU of $6.69. Only Asia-Pacific region would see a flat 0% rate for ARPU because the increase in ad impressions in India and China would offset the decrease in prices. Even though we see the covid situation improving, the after effects of the virus would still be felt in the Q3 hence the single digit positive growth in ARPU across all regions for 2020. The marketing expense would also reduce as a result of low business and achieving efficiency. Facebook also accrued legal costs, which would reflect by the increase in the G&A expense as a percentage of revenue. The loss in share prices would also allow Facebook to repurchase 6.8m shares, up from 6.3m in Q1 2020. It would allow Facebook to end 2020 with a total operating expense of $53.5B.
Facebook’s major source of revenue, advertising, has been largely hit with the demand for advertisement diminishing. We have already seen the growth rate in Average Revenue per User (ARPU) halving in Q1 2020 on a QoQ basis. I see this trend continuing and the growth rate actually shrinking and going into negative for the second quarter with a total ARPU of $6.69. Only Asia-Pacific region would see a flat 0% rate for ARPU because the increase in ad impressions in India and China would offset the decrease in prices. Even though we see the covid situation improving, the after effects of the virus would still be felt in the Q3 hence the single digit positive growth in ARPU across all regions for 2020. The marketing expense would also reduce as a result of low business and achieving efficiency. Facebook also accrued legal costs, which would reflect by the increase in the G&A expense as a percentage of revenue. The loss in share prices would also allow Facebook to repurchase 6.8m shares, up from 6.3m in Q1 2020. It would allow Facebook to end 2020 with a total operating expense of $53.5B.
| |||
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.