Facebook Inc Earnings Model (Paul)
Author: Supratim Paul, Published: July 28, 2020 7:57pm, Category: Earnings Preview (Prior to the 2Q2019 earnings release)
Summary of Model: I hold a bullish outlook on Facebook ahead of their 2Q2020 earnings report after building my earnings model forecast to support recent news that contribute to a positive result. As we all know Facebook has the most amount of users compared to any other social network and provides the most valuable data for social network online advertising. As people are staying home, they are naturally gravitating to one of many social network platforms that Facebook owns. Despite this covid-19 period, Facebook's ad revenue per user will still grow at a solid rate, although taking a small hit as business are only starting to reopen. Especially with the large corporations, there is continually growing value that their advertisers see in working with Facebook.
Facebook heavily relies on its advertising revenue, which makes up 98% of their total revenue. Given this, it is important to look at how the ARPU rates will be affected in the near future. I believe that their will be slightly negative growth rate in the US and Canada region due to the ongoing coronavirus related restrictions and the user base having stalled due to high level growth in the recent past. However, I expect their will be positive, albeit low growth in Europe and Asia due to their accelerated reopening and a considerable amount of room for penetration especially in developing countries. Just recently, TikTok, one of Facebook's main competitors, was banned from India and other countries such as the United States are planning to follow suite due to security concerns.
Overall, Facebook will have steady growth in user and user engagements through their digital advertising and e-commerce initiatives, thus making Facebook's outlook strong, in both the short term and long term.
Facebook heavily relies on its advertising revenue, which makes up 98% of their total revenue. Given this, it is important to look at how the ARPU rates will be affected in the near future. I believe that their will be slightly negative growth rate in the US and Canada region due to the ongoing coronavirus related restrictions and the user base having stalled due to high level growth in the recent past. However, I expect their will be positive, albeit low growth in Europe and Asia due to their accelerated reopening and a considerable amount of room for penetration especially in developing countries. Just recently, TikTok, one of Facebook's main competitors, was banned from India and other countries such as the United States are planning to follow suite due to security concerns.
Overall, Facebook will have steady growth in user and user engagements through their digital advertising and e-commerce initiatives, thus making Facebook's outlook strong, in both the short term and long term.
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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.