Facebook’s Earnings Beat the Market’s Expectations Again – Here’s How You can Make Money from it
Facebook’s earnings has been a hot topic lately and on October 24th I placed an order to buy Facebook ($FB) on SprinkleBit, after reading about Facebook’s plans of adding video ads to their advertising service.
$FB comes out with their earnings report on the 30th and I believe they have executed well on their Mobile strategy and it could boost up the stock to $60 where as the downside I see is still at a minimum of $50.
After this motivation, highlighting the upside of Facebook’s earnings report, was posted on SprinkleBit there were a dozen followers who followed this investment after doing some home work on their own. Here are a few motivations:
Let’s take a look at the numbers they released today:
- After rising 75% Q/Q in Q2, Facebook’s (FB) mobile ad sales rose another 34% Q/Q in Q3 to ~$880M, and made up 49% of ad sales (up from 41% in Q2). The figure also soundly beat a consensus (as reported by Goldman) of $791M.
- Total ad sales rose 13% Q/Q and 66% Y/Y to $1.8B, and accounted for 89% of revenue. Payments revenue rose 2% Q/Q and 24% Y/Y to $218M.
- Facebook had 1.19B monthly active users at the end of Q3, +3% Q/Q and +18% Y/Y. Mobile MAUs +7% Q/Q and +45% Y/Y to 874M. In a sign of improving engagement, daily active users once more grew at a faster pace than MAUs, rising 4% Q/Q and 25% Y/Y to 728M (61% of MAUs).
- Costs/expenses +45% Y/Y after rising 56% in Q2. R&D spend +51% Y/Y to $369M, sales/marketing +39% to $233M, G&A +13% to $171M.
- Capex was $284M vs. $266M in Q2. Cash/investments totaled $9.3B at quarter’s end.
For those of you who like graphics more than numbers here are some key slides from Facebook’s earnings deck.
Facebook is showing off a lot of growth but isn’t that what people expect from a stock like this?
Wall Street expected Earnings Per Share (EPS) to be in the $.18 range and our friends over at Estimize expected it to be $.23 but the actual Earnings Per share was at $.25 which is 39% higher than the market expected.
How can you make money from this?
It’s important to look at a company for what it is and the stock market is just your entry in to owning a part of that company or an exit to sell your share. Facebook is currently trading at a PE around 200 compared to Google’s 28. This means that you’re currently paying $200 per dollar earned the last 12 months for Facebook and $28 per dollar earned by Google during the same time period. The reason why these are different is because Facebook’s revenues are growing with a pace of about 60% per year compared to Google’s 12%. Some time in the future, these two PE numbers are going to come closer to each other when Facebook’s earnings and revenue growth is slowing down. However, as long as that growth in revenue show’s up in the bottom line (Earnings per share which is the E in P/E) that number is going to come down even if the price of the stock goes up. With the rollout of video ads on the Facebook platform the revenue growth and earnings growth can continue increase in the same rate and the price of Facebook could continue to increase.
These are just my thoughts and should not be taken as advice. Always do your homework before you invest!