Facebook Inc Earnings Model (Mudigati)
Author: Lasya Mudigati, Published: July 28, 2020 8:01pm, Category: Earnings Preview (Prior to the 2Q2019 earnings release)
Summary of Model: This model predicts that Facebook will experience increased revenue as a result of the global pandemic. Since the pandemic has started, Facebook has experienced record-breaking usage, clearly indicating that stay at home orders seem to simulate usage. With the Southeast region already experiencing a greater increase in MAUs in years past, lockdowns in the Southeast will ensure that the YoY growth remains especially high.
The model also indicates that the YoY growth in ARPU will be less than expected because the pandemic has caused many businesses to not have enough revenue to invest back into marketing. Facebook's main source of revenue is from advertising, so this will certainly be an obstacle for the company in terms of increasing ARPU until the pandemic stabilizes.
In terms of ratio analysis, this model also predicts that Facebook will have to increase spending on its own marketing because of the backlash it has received due to its refusal of regulating certain content. Social tension has also created intense criticism regarding the company's actions. This may require a subsequent decrease in R&D spending to ensure more positive public relations.
The model also indicates that the YoY growth in ARPU will be less than expected because the pandemic has caused many businesses to not have enough revenue to invest back into marketing. Facebook's main source of revenue is from advertising, so this will certainly be an obstacle for the company in terms of increasing ARPU until the pandemic stabilizes.
In terms of ratio analysis, this model also predicts that Facebook will have to increase spending on its own marketing because of the backlash it has received due to its refusal of regulating certain content. Social tension has also created intense criticism regarding the company's actions. This may require a subsequent decrease in R&D spending to ensure more positive public relations.
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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.