Facebook Inc Earnings Model (Venkatesan)
Author: Arjun Venkatesan, Published: July 28, 2020 6:23pm, Category: Earnings Preview (Prior to the 2Q2019 earnings release)
Summary of Model: 2020 has by no means been easy to navigate through for many companies. The market is continuously being shaped by unusual factors and although it is easy to label Facebook (FB) as a bearish investment opportunity, it is worthwhile to take a second look at it. COVID-19 has put the world at a difficult place, pitting public and economic health against each other. As result quarantine measures and protocols have drastically increased the average time a typical user spends on social media. Therefore, it is safe to assume that Facebook should be expecting an unusual growth in Monthly Active Users which will be reflected positively in their earnings report.
However, another obstacle that Facebook faces is the boycotts on running advertisements on their platform. Many large corporations have cut down on their advertising on Facebook as a response to the company’s “laissez-faire” approach to monitoring political and hate content on their platform. This “political awareness” image that companies are fostering is just a positive way for them to mask the cutting down on marketing expenditures to keep their business afloat during COVID-19. Although these boycotts seem like they would impact Facebook’s earnings, it is important to think of the situation in simple “supply and demand” terms. Due to the increase of active users, companies will still have incentives to push out their products through advertisements as it is the best way to advertise. Businesses need a way to enter your home to market their products as no one is willing to step outside, and Facebook just might have the right key for them to enter through social media.
Among these factors that I have considered in my model, I also took into consideration the seasonal changes the company metrics faces. Over the past years, there exists a trend where certain quarters produce more impressive results than others. Although there exists no guarantee that the seasonal trends will continue to occur, it serves as a baseline to predict what to expect from a company’s earnings.
Facebook is an international company, however, most of its revenues come from the US/Canada region. For these reasons I have narrowed my focus on assessing the US/Canada market as it holds a bigger impact on earnings. Overall, after taking all these factors under consideration, I hold a bullish vision for Facebook’s earnings report this quarter.
However, another obstacle that Facebook faces is the boycotts on running advertisements on their platform. Many large corporations have cut down on their advertising on Facebook as a response to the company’s “laissez-faire” approach to monitoring political and hate content on their platform. This “political awareness” image that companies are fostering is just a positive way for them to mask the cutting down on marketing expenditures to keep their business afloat during COVID-19. Although these boycotts seem like they would impact Facebook’s earnings, it is important to think of the situation in simple “supply and demand” terms. Due to the increase of active users, companies will still have incentives to push out their products through advertisements as it is the best way to advertise. Businesses need a way to enter your home to market their products as no one is willing to step outside, and Facebook just might have the right key for them to enter through social media.
Among these factors that I have considered in my model, I also took into consideration the seasonal changes the company metrics faces. Over the past years, there exists a trend where certain quarters produce more impressive results than others. Although there exists no guarantee that the seasonal trends will continue to occur, it serves as a baseline to predict what to expect from a company’s earnings.
Facebook is an international company, however, most of its revenues come from the US/Canada region. For these reasons I have narrowed my focus on assessing the US/Canada market as it holds a bigger impact on earnings. Overall, after taking all these factors under consideration, I hold a bullish vision for Facebook’s earnings report this quarter.
| |||
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.