Facebook Inc Earnings Model (Patel)
Author: Mansi Patel, Published: July 28, 2020 6:10pm, Category: Earnings Preview (Prior to the 2Q2019 earnings release)
Summary of Model: As Facebook’s second-quarter earnings are forthcoming, these are my personal predictions for the company’s earnings regarding the remainder of this fiscal year and next year. This global pandemic is unprecedented, and not only has it changed the everyday routines of people but has also disrupted the economy and significantly impacted the NASDAQ stock exchange. Considering the effects of COIVD-19 and the majority of people being in quarantine has led to an increased usage of social media platforms, like Facebook and their parent companies: Messenger, Instagram, and WhatsApp. Sheryl Sandberg, COO of Facebook mentioned “we’ve seen strong growth in gaming and relative stability in technology and e-commerce, which is one of our largest sectors”. I predict that stay-home orders have made people more active on these sites, hence I reported a bullish market for Facebook's future earnings. I will dive more deeply into the changes I made into the model, followed by my reasoning.
Monthly Active Users: MAU, is an important evaluation for companies, as it determines key metrics of how many unique users have logged-in to their site. There are several reasons why I believe this number has increased, first and foremost is due to quarantine. At the start of March, many individuals took shelter within their homes, and to ease their stress level, many relied on social media platforms like Facebook. Dave Wehner, CFO of Facebook stated, “In March, we estimate that on average over 2.3 billion people used at least one of our services on a daily basis, and that approximately 3 billion people were active on a monthly basis”. Additionally, I believe MAU is increasing due to the constant engagement of social events that occurred during April- June. Many users on these social platforms shared and posted content relevant to Black Lives Matter, while also creating multiple Facebook groups geared towards the topic. Not only is this impact occurring within North America, but also other countries. India, for instance, has the leading audience for Facebook, around 280 million users. Along with that, India has been hit hard with coronavirus cases, resulting in quarantine for the majority of the population. This then increased leisure time and allows more for engagement on Facebook and their parent companies. However, going into the year 2021, I decreased MAU for all countries. Since cases of COVID-19 will decline and people will shift back to their daily norms, becoming less active on social platforms.
Average Revenue Per User: ARPU, yields the amount of revenue Facebook will earn. The majority of Facebook’s revenue is dominated by ads. The effects of COVID-19 have created a drop in ARPU since there was a decline in ad demand. Further events, such as the boycott of advertisers on social media has led to a significant decrease in revenue. These boycotts have significantly damaged Facebook, their shares had dropped 8.3% and $56 billion from the company’s market value. Accordingly, to these measures, for 2020 I decreased the ARPU, as many companies have put a pause on their ads and there has been a decline in ad engagement. Although there is currently a decline, ad engagement will begin to increase as COVID-19 becomes less relevant. Therefore, I began to increase the ARPU for 2021, since companies will no longer pause their ads.
Overall: Facebook is a strong company, and even during unprecedented times they still have growth. Even though ARPU has been low for this quarter as the economy faces recession, it is bound to bounce back up for 2021 as coronavirus cases decline.
Monthly Active Users: MAU, is an important evaluation for companies, as it determines key metrics of how many unique users have logged-in to their site. There are several reasons why I believe this number has increased, first and foremost is due to quarantine. At the start of March, many individuals took shelter within their homes, and to ease their stress level, many relied on social media platforms like Facebook. Dave Wehner, CFO of Facebook stated, “In March, we estimate that on average over 2.3 billion people used at least one of our services on a daily basis, and that approximately 3 billion people were active on a monthly basis”. Additionally, I believe MAU is increasing due to the constant engagement of social events that occurred during April- June. Many users on these social platforms shared and posted content relevant to Black Lives Matter, while also creating multiple Facebook groups geared towards the topic. Not only is this impact occurring within North America, but also other countries. India, for instance, has the leading audience for Facebook, around 280 million users. Along with that, India has been hit hard with coronavirus cases, resulting in quarantine for the majority of the population. This then increased leisure time and allows more for engagement on Facebook and their parent companies. However, going into the year 2021, I decreased MAU for all countries. Since cases of COVID-19 will decline and people will shift back to their daily norms, becoming less active on social platforms.
Average Revenue Per User: ARPU, yields the amount of revenue Facebook will earn. The majority of Facebook’s revenue is dominated by ads. The effects of COVID-19 have created a drop in ARPU since there was a decline in ad demand. Further events, such as the boycott of advertisers on social media has led to a significant decrease in revenue. These boycotts have significantly damaged Facebook, their shares had dropped 8.3% and $56 billion from the company’s market value. Accordingly, to these measures, for 2020 I decreased the ARPU, as many companies have put a pause on their ads and there has been a decline in ad engagement. Although there is currently a decline, ad engagement will begin to increase as COVID-19 becomes less relevant. Therefore, I began to increase the ARPU for 2021, since companies will no longer pause their ads.
Overall: Facebook is a strong company, and even during unprecedented times they still have growth. Even though ARPU has been low for this quarter as the economy faces recession, it is bound to bounce back up for 2021 as coronavirus cases decline.
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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.