Facebook Inc Earnings Model (Kishan Patel)
Author: Kishan Patel, Published: July 28, 2020 8:26pm, Category: Earnings Preview (Prior to the 2Q2019 earnings release)
Summary of Model: My model illustrates the assumption that the COVID-19 restrictions across the globe, leads to an increase in MAU for 2Q 2020. With the second rise of COVID-19, the later quarters have been shown to reflect a decent increase in MAU towards an eventual return to normalcy of 2019 levels. Specifically, I expect a strong boost in MAU with the release in Instagram Reels for 3Q 2020. With rival TikTok being criticized for its operations, Reels has the potential to increase loyalty to Instagram and capture a greater market share in India. Further, this model assumes the long term increase in MAU in the Asia Pacific region due to a decent-sized investment in Jio Platforms Industries which already has a strong market share in information technology in the region.
This model reflects lower operating expenses due to the increase in work from home during the 2nd quarter. With the assumption that there will be a return to normal expenditure levels as the COVID-19 pandemic fades, this model also takes into account the outlook CEO, Mark Zuckerberg, gave of having 50% of Facebook’s workforce work remotely in the near future.
In this model, I have implemented a short term decrease in average revenue per user as advertisers have lesser clients to which they can advertise to amidst the global pandemic. Further, the short term decrease in average revenue per user was also implemented as a result of the boycotts of Facebook’s advertisements by many big businesses.
As a result of these occurrences affecting its ARPU, I believe it reasonable to expect that Facebook would push more out into it’s marketing efforts to gain more clients for its advertising services. As a result, I added in the estimate that 2Q 2020 will see an increase in marketing expenses and would thereafter have a gradual decrease to 2019 levels.
This model reflects lower operating expenses due to the increase in work from home during the 2nd quarter. With the assumption that there will be a return to normal expenditure levels as the COVID-19 pandemic fades, this model also takes into account the outlook CEO, Mark Zuckerberg, gave of having 50% of Facebook’s workforce work remotely in the near future.
In this model, I have implemented a short term decrease in average revenue per user as advertisers have lesser clients to which they can advertise to amidst the global pandemic. Further, the short term decrease in average revenue per user was also implemented as a result of the boycotts of Facebook’s advertisements by many big businesses.
As a result of these occurrences affecting its ARPU, I believe it reasonable to expect that Facebook would push more out into it’s marketing efforts to gain more clients for its advertising services. As a result, I added in the estimate that 2Q 2020 will see an increase in marketing expenses and would thereafter have a gradual decrease to 2019 levels.
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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.