Facebook Inc Earnings Model (Xiong)
Author: Jane Xiong, Published: July 19, 2020 10:15am, Category: Earnings Preview (Prior to the 2Q2019 earnings release)
Summary of Model: My model shows Facebook as a slightly bullish company. Beginning March 2020, COVID-19 related restrictions such as stay-at-home orders have officially been in effect and I believe that some restrictions and uncertainties will persist into 2021. Because of COVID-19 restrictions and the introduction of the JIO partnerships in India, the growth in monthly active users has increased significantly in the first quarter of 2020 from past quarters. Starting June 2020(2nd quarter of 2020), I believe that the growth rates will slowly and steadily decrease as COVID-19 restrictions are being lifted, eventually leveling off in 2021. Even though significantly more people have been going on Facebook in the midst of the pandemic, there has been a noticeable drop in growth of average revenue per user as there is a significant decline in ad demand.
In the U.S. and Canada, there has will be a negative growth rate in ARPU before it starts to stabilize later in 2020 and then eventually recover in 2021 due to the fact that Travel & Auto industries have been hit hard by COVID-19 effects. However, there has been faster growth in Asia due to their restrictions being lifted earlier. The Euro/USD exchange rate fluctuation greatly affects the ARPU of Europe, and I believe it will cause a headwind on Europe's ARPU for the rest of the year, slowing down its growth. I believe that marketing expenses will increase starting June 2020 as Facebook expects to slowly lose its increased engagement, which is consistent with management guidance ranges and my assumption that the total operating expenses have declined in early to mid 2020 and are slowly returning to similar values as past quarters. Lastly, I believe that due to COVID uncertainties, including budget cuts, the share repurchase average price will be less than $230(in my case I assumed $200 per share) and the share repurchase amount in a period will be less than $1 billion until the end of 2020. In 2021, I believe the amounts will steadily increase and be more similar to those in 2019.
In the U.S. and Canada, there has will be a negative growth rate in ARPU before it starts to stabilize later in 2020 and then eventually recover in 2021 due to the fact that Travel & Auto industries have been hit hard by COVID-19 effects. However, there has been faster growth in Asia due to their restrictions being lifted earlier. The Euro/USD exchange rate fluctuation greatly affects the ARPU of Europe, and I believe it will cause a headwind on Europe's ARPU for the rest of the year, slowing down its growth. I believe that marketing expenses will increase starting June 2020 as Facebook expects to slowly lose its increased engagement, which is consistent with management guidance ranges and my assumption that the total operating expenses have declined in early to mid 2020 and are slowly returning to similar values as past quarters. Lastly, I believe that due to COVID uncertainties, including budget cuts, the share repurchase average price will be less than $230(in my case I assumed $200 per share) and the share repurchase amount in a period will be less than $1 billion until the end of 2020. In 2021, I believe the amounts will steadily increase and be more similar to those in 2019.
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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.