Facebook Inc Earnings Model (Patwari)
Author: Sanchita Patwari, Published: July 28, 2020 9:37pm, Category: Earnings Preview (Prior to the 2Q2019 earnings release)
Summary of Model: As the coronavirus pandemic persists, Facebook realized an increase in engagement due to users being sheltered in their homes. As more users flock to Facebook and other social media applications due to boredom and an abundance of free time, we see the significant role of social media during these difficult times. Although the pandemic resulted in an overall increase in engagement all around the world, Facebook's ad revenue remains relatively lower than before the pandemic. Businesses that were negatively impacted by the pandemic cannot afford the advertisement services of Facebook.
As a result of countries in the European Union reopening their borders and businesses, businesses will begin to restart their advertising efforts, so Average Revenue per User will begin to slowly increase in the region. Monthly Active Users, however, will slightly decrease in the European continent as more individuals will be able to return to their normal lifestyles.
Engagement in Asian regions will increase significantly, specifically in India (driver of engagement in Asia). Due to the ban of an immensely popular rival application, "TikTok," Indian users will substitute the banned application with other social media platforms like Facebook, Instagram, and Twitter. As a result, Monthly Active Users will increase in Asia, while the Average Revenue per User will remain the same as lockdown continues. Furthermore, Facebook had shown immense interest in expanding its presence in India. The Q12020 Facebook Earnings Call stated that "In addition, this past week, as Mark mentioned, we signed an agreement to invest approximately $5.7 billion into Jio Platforms in India." Facebook's partnership in India, combined with growing numbers of displaced TikTok users, will allow Facebook to increase its presence in India.
The United States has similar engagement results due to the looming threat of a ban of the same immensely popular application. An article in TechCrunch titled, "Ban or no ban, Facebook wins in U.S. threats against TikTok." The article explains that "the mere suggestion of a ban is proving a boon to TikTok's biggest rival, Facebook — and notably at a time when the U.S. company faces growing scrutiny over its decision not to take action on multiple controversial posts from Donald Trump." The threat of a ban is forcing TikTok influencers to shift their user base to other social media platforms, specifically Facebook's Instagram. As a result, Monthly Active Users will increase only slightly since the ban has not yet been enforced in the United States, along with the fact that some states are reopening. Average Revenue per User, however, will stay flat or even decrease as companies are losing faith in Facebook's advertisement system.
By 2021, individuals will begin to be less active on Facebook, and businesses will start to advertise on Facebook again.
As a result of countries in the European Union reopening their borders and businesses, businesses will begin to restart their advertising efforts, so Average Revenue per User will begin to slowly increase in the region. Monthly Active Users, however, will slightly decrease in the European continent as more individuals will be able to return to their normal lifestyles.
Engagement in Asian regions will increase significantly, specifically in India (driver of engagement in Asia). Due to the ban of an immensely popular rival application, "TikTok," Indian users will substitute the banned application with other social media platforms like Facebook, Instagram, and Twitter. As a result, Monthly Active Users will increase in Asia, while the Average Revenue per User will remain the same as lockdown continues. Furthermore, Facebook had shown immense interest in expanding its presence in India. The Q12020 Facebook Earnings Call stated that "In addition, this past week, as Mark mentioned, we signed an agreement to invest approximately $5.7 billion into Jio Platforms in India." Facebook's partnership in India, combined with growing numbers of displaced TikTok users, will allow Facebook to increase its presence in India.
The United States has similar engagement results due to the looming threat of a ban of the same immensely popular application. An article in TechCrunch titled, "Ban or no ban, Facebook wins in U.S. threats against TikTok." The article explains that "the mere suggestion of a ban is proving a boon to TikTok's biggest rival, Facebook — and notably at a time when the U.S. company faces growing scrutiny over its decision not to take action on multiple controversial posts from Donald Trump." The threat of a ban is forcing TikTok influencers to shift their user base to other social media platforms, specifically Facebook's Instagram. As a result, Monthly Active Users will increase only slightly since the ban has not yet been enforced in the United States, along with the fact that some states are reopening. Average Revenue per User, however, will stay flat or even decrease as companies are losing faith in Facebook's advertisement system.
By 2021, individuals will begin to be less active on Facebook, and businesses will start to advertise on Facebook again.
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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.