Facebook Inc Earnings Model (Madhalam)
Author: Natasha Madhalam, Published: July 28, 2020 8:59pm, Category: Earnings Preview (Prior to the 2Q2019 earnings release)
Summary of Model: This model predicts Facebook Inc.’s (NYSE:HD) second quarter earnings for 2020 to be bullish based on current economic conditions, key metrics and analyst estimates. Facebook has been largely impacted due to the COVID-19 pandemic which was reflective of a steep decrease of its stock on the S&P 500 index. Alongside the current pandemic, the Black Lives Matter movement had instigated a controversy involving Facebook’s use of ads. Many ads were linked to exploitation for profit as a result many companies backed out of posting ads on Facebook. Although Facebook is facing financial losses related to ad revenues currently, I believe that the Average Revenue per User will steadily increase as a result of the masses staying at home and feeling apprehensive to leave during the reopening phases of COVID. Recent updates to several features including Facebook Messenger, collection lists, and game streaming is gaining popularity and attracting more users to Facebook. Facebook is also investing in acquisitions which help provide better user experiences. These features also encourage current users to engage more time on Facebook along with the quarantine restrictions due to the pandemic. An increase in the number of new users to Facebook and increase in time spent by existing users is reflected in the average revenue per user rate. Due to social distancing, curfews, health risks and less time spent outside on a general basis among the populace, I believe that people will be more likely to connect on social media outlets like Facebook. Accompanied with the latest updates to the features on Facebook, this model predicts a steady increase in average rate per user. For the average price of share repurchase assumptions I started with the price of $230 during June of 2020 and then increased to $240 during December 2020 as Facebook starts repurchasing. In terms of 2021 quarterly earnings, I felt that the share value would decrease as there would be less repurchasing once the pandemic is not as severe as it was in 2020. This assumption is based on the idea that there would be less users and time spent on Facebook once society begins to move into normalcy.
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.