Facebook Inc Earnings Model (Pemmaraju)
Author: Anika Pemmaraju, Published: July 28, 2020 6:05pm, Category: Earnings Preview (Prior to the 2Q2019 earnings release)
Summary of Model: Facebook will experience an increase in global monthly users, resulting in increased revenue in both 2020 and 2021. The impact of coronavirus measures, specifically stay-at-home orders, will propel growth in Q2 and Q3. This growth will be marginalized as countries begin to reopen, eventually re-establishing stable levels in Q4 and continuing to see a steady increase in 2021. In the US, Canada, and Europe, Facebook will see a rise in users concentrated in Q2 and Q3 before returning to stable levels in Q4. However, in Asia-Pacific, countries such as India have already begun reopening their economies, resulting in smaller growth percentages. Other parts of the world will experience the same growth as North America and Europe, resulting in an increase of Facebook users before returning to stable levels in Q4.
On the other hand, Facebook will experience a decrease in ARPU, as businesses will be less likely to pay for ads due to decreased activity. However, as economies reopen, this will rebound as well, establishing steady levels in 2021. Recent political pressure has also impacted ARPU, but Facebook is working to change its platform and minimize hate speech by allowing users to opt out of political ads and informing them when ads are untrustworthy. Despite the decrease in ARPU, the substantial increase in global users outweighs this loss, resulting in the overall growth of Facebook’s revenue.
On the other hand, Facebook will experience a decrease in ARPU, as businesses will be less likely to pay for ads due to decreased activity. However, as economies reopen, this will rebound as well, establishing steady levels in 2021. Recent political pressure has also impacted ARPU, but Facebook is working to change its platform and minimize hate speech by allowing users to opt out of political ads and informing them when ads are untrustworthy. Despite the decrease in ARPU, the substantial increase in global users outweighs this loss, resulting in the overall growth of Facebook’s revenue.
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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.