Facebook Inc Earnings Model (Kohli)
Author: Manleen Kohli, Published: July 28, 2020 9:54pm, Category: Earnings Preview (Prior to the 2Q2019 earnings release)
Summary of Model: With Facebook’s second-quarter earnings report releasing soon, in my forecasting model, I have illustrated how the impacts of COVID will have a lasting effect on Facebook in the upcoming quarters. The major contributors to revenue are the Monthly Average Users and Average Revenue Per User, which have been divided by region.
Monthly Average Users (MAU): Being one of the biggest platforms, Facebook has taken advantage of its resources to increase its users. Especially during a time like this, Facebook and Instagram have not only allowed people to post socially but provide an easy way for small businesses to transition to an online platform. We see this with Facebook’s recent partnership with JIO Platforms in India, thus increasing user engagement significantly.
I approached this data by assessing the situation in various regions. Through much of the second quarter, we saw COVID trends slowly decreasing in certain regions, specifically Europe and several countries in Asia Pacific. As we approach the end of the second quarter, many of the stay-at-home restrictions implemented had been removed and are slowly heading back to normal life. In my model, I have shown an increase in the second quarter. However, as they remove restrictions, although many people may engage in social media, it will be slightly less than the trends we have seen in the last quarter or two. I intend the same for US/Canada, but at a much slower rate since many restrictions are still in place and as COVID rises in this region, the MAU trends will decline in further quarters.
Average Revenue Per User (APRU): Being another major contributor to Facebook’s revenue, advertisement demand has taken a hit during the pandemic. Although advertisement prices and demand are currently at a low, I project this trend to be temporary during the second and third quarters. With many countries shifting back to normalcy, APRU will increase. I have only shown a generous linear increase in the upcoming quarters of 2021 since several factors regarding COVID are still unknown. With that said, I have also taken into account seasonality especially in the fourth quarter in the US/Canada region since the holiday season as well as the upcoming election season may show a modest rise in APRU.
Monthly Average Users (MAU): Being one of the biggest platforms, Facebook has taken advantage of its resources to increase its users. Especially during a time like this, Facebook and Instagram have not only allowed people to post socially but provide an easy way for small businesses to transition to an online platform. We see this with Facebook’s recent partnership with JIO Platforms in India, thus increasing user engagement significantly.
I approached this data by assessing the situation in various regions. Through much of the second quarter, we saw COVID trends slowly decreasing in certain regions, specifically Europe and several countries in Asia Pacific. As we approach the end of the second quarter, many of the stay-at-home restrictions implemented had been removed and are slowly heading back to normal life. In my model, I have shown an increase in the second quarter. However, as they remove restrictions, although many people may engage in social media, it will be slightly less than the trends we have seen in the last quarter or two. I intend the same for US/Canada, but at a much slower rate since many restrictions are still in place and as COVID rises in this region, the MAU trends will decline in further quarters.
Average Revenue Per User (APRU): Being another major contributor to Facebook’s revenue, advertisement demand has taken a hit during the pandemic. Although advertisement prices and demand are currently at a low, I project this trend to be temporary during the second and third quarters. With many countries shifting back to normalcy, APRU will increase. I have only shown a generous linear increase in the upcoming quarters of 2021 since several factors regarding COVID are still unknown. With that said, I have also taken into account seasonality especially in the fourth quarter in the US/Canada region since the holiday season as well as the upcoming election season may show a modest rise in APRU.
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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.