Facebook Inc Earnings Model (Parwani)
Author: Samir Parwani, Published: July 27, 2020 9:58pm, Category: Earnings Preview (Prior to the 2Q2019 earnings release)
Model Summary: Facebook, the social media giant, has been deeply affected by the onset of the COVID-19 pandemic, a dramatic increase in their Monthly Average Users (MAU) due to increased internet traffic from extra free time, but also a hit to their Average Revenue Per User (ARPU) due to companies lower willingness to spend on advertisements — both of which have been implemented in my model. However, Industry discussions & recent research reports have shown that the online ad market has rebounded very well since it’s fall in late March. FB is benefiting from this comeback in multiple different ways. It’s for these reasons that I am bullish on Facebook, and although the 2nd quarter earnings report might not be the best beat due to the coronavirus pandemic’s effect on advertising, my model still depicts a bright future for the company as they implement new services into their apps, as their user base continues to grow, and they begin to see a stronger ROIs.
In my model, I factor in possible catalysts for Facebook’s earnings. Facebook generates its revenue through a large base of over 8M+ advertisers, and over 160 million business on the platform itself. Due to there being heavy exposure to performance-based/DR ads, Facebook has increased their revenue stream in the past recent years through offering personalized data for each user.
Catalysts
Investments: Facebook is currently in the process of investing in various startups, which may give them an upper edge against other social media firms, especially as they own Oculus and have partnered up with firms such as Jio and ULC Robotics. Additionally, Facebook has a
strong track record when it comes to their ROI, which I took into account by increasing revenue and capex in the model.
COVID-19: Facebook has seen a wild increase in their ARPU through many people staying at home and using their platforms. Additionally, the people that have been outside or visited certain parks have posted on their social media more so. With families and friends in need of
connecting with each more, internet traffic is at all-time highs. Facebook will see higher revenue streams in future quarters with advertisers coming back as well.
Boycotts: Despite some major companies pausing spending on FB advertisements in support of social justice movements in recent months, these companies account minimally to their total revenue, even stating that they have largely recovered from these trends already. CEO Mark Zuckerberg stated in a press release he doesn’t fear losing customers and that they’ll return soon enough, that the pausing is temporary and minor. Management stated in the Q12020 Earnings follow-up call, “SMBs are also a major part of our business going forward. And on there, it's really the execution we do quarter-after-quarter to make our ads perform. We offer very personalized ads that can be directly targeted at small groups.” Therefore, I don’t predict these boycotts having major effects on the company’s earnings.
In my model, I factor in possible catalysts for Facebook’s earnings. Facebook generates its revenue through a large base of over 8M+ advertisers, and over 160 million business on the platform itself. Due to there being heavy exposure to performance-based/DR ads, Facebook has increased their revenue stream in the past recent years through offering personalized data for each user.
Catalysts
Investments: Facebook is currently in the process of investing in various startups, which may give them an upper edge against other social media firms, especially as they own Oculus and have partnered up with firms such as Jio and ULC Robotics. Additionally, Facebook has a
strong track record when it comes to their ROI, which I took into account by increasing revenue and capex in the model.
COVID-19: Facebook has seen a wild increase in their ARPU through many people staying at home and using their platforms. Additionally, the people that have been outside or visited certain parks have posted on their social media more so. With families and friends in need of
connecting with each more, internet traffic is at all-time highs. Facebook will see higher revenue streams in future quarters with advertisers coming back as well.
Boycotts: Despite some major companies pausing spending on FB advertisements in support of social justice movements in recent months, these companies account minimally to their total revenue, even stating that they have largely recovered from these trends already. CEO Mark Zuckerberg stated in a press release he doesn’t fear losing customers and that they’ll return soon enough, that the pausing is temporary and minor. Management stated in the Q12020 Earnings follow-up call, “SMBs are also a major part of our business going forward. And on there, it's really the execution we do quarter-after-quarter to make our ads perform. We offer very personalized ads that can be directly targeted at small groups.” Therefore, I don’t predict these boycotts having major effects on the company’s earnings.
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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.