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Key points to remember
- EPS was $3.88 versus analysts’ forecast of $3.16.
- Revenues also exceeded consensus estimates.
- Monthly active users for the fourth quarter were higher than expected.
- Facebook predicts significant ad targeting headwinds in 2021 due to platform changes and an evolving regulatory landscape.
What happened
Facebook smashed analyst forecasts for EPS, revenue, and monthly active users (MAUs) for the fourth quarter of fiscal 2020. EPS of $3.88 was up significantly from the $3.16 forecast and represents a major improvement of around 52% from $2.56 over Q4 FY19. Total revenue climbed around 33% year-over-year, also beating analysts’ forecasts. Significantly, Facebook also continued to grow its MAU base, reporting 2.8 billion monthly active users for the quarter, also ahead of consensus estimates. These strong results could position Facebook well, as the company expects to face ad targeting headwinds due to platform changes and evolving regulations in 2021.
(Below is the original Earnings Snapshot from Investopedia, published January 26, 2021.)
What to look for
Despite major headwinds, Facebook Inc. (Facebook) has seen its shares, earnings and traffic surge over the past year as millions of people have worked from home amid the COVID-19 pandemic. But this success has also launched major opposition to the world’s largest social network. Critics say the company has failed to take steps to end hate speech and posts advocating political violence.More worryingly, in December the Federal Trade Commission and attorneys general in 46 states filed antitrust lawsuits against Facebook, calling on the company to sell its popular WhatsApp and Instagram features.
Investors will look to see how these forces affect the company’s financial results when Facebook reports its results on January 27, 2020 for the fourth quarter of fiscal 2020. Analysts predict earnings per share (PES) will grow strongly, albeit at a slower pace than previous quarters in 2020. Revenue is expected to grow at a faster pace than in the past three quarters.
Another key metric investors will focus on is Facebook’s monthly active users (STILL), a key indicator of user engagement and a major driver of ad revenue. Analysts expect Facebook to gain monthly active users at a faster rate than in the fourth quarter of fiscal 2019, but at a slower rate than in the first three quarters of 2020.
After falling with the broader market in early 2020 as the COVID-19 pandemic gained momentum, Facebook stock rallied strongly ahead of the market throughout the spring and summer. Shares of the company then traded broadly sideways between September and December, and retreated in mid-January before rebounding. Despite these wild swings, Facebook shares have provided a total return of 24.0% over the past 12 months, still ahead of the S&P 500 total return of 15.7% as of January 23, 2021.
Source: Trading View.
Facebook’s quarterly revenue has grown at a rapid pace in recent years. In 2017 and 2018, the company saw quarterly revenue growth of at least 30.3% each quarter. That pace has slowed over the past two years, dropping as low as 10.7% for the second quarter of fiscal 2020. For the fourth quarter of fiscal 2020, analysts expect revenue from Facebook rose 24.6%, the strongest quarter of fiscal 2020 and the same growth as a year ago. earlier.
Facebook’s quarterly EPS performance has been less consistent in recent years. The first two quarters of fiscal 2019 saw sharp year-over-year (YOY) declines in EPS. In contrast, the company posted its two strongest quarters of year-over-year EPS growth in the first and second quarters of fiscal 2020, at 101.9% and 97.7%, respectively. Consensus estimates put fourth-quarter fiscal 2020 EPS growth at 23.3%. That’s less than the previous three quarters of fiscal 2020, but a strong acceleration from 7.3% in the fourth quarter of fiscal 2019.
| Key Facebook Metrics | |||
|---|---|---|---|
| Estimate for the fourth quarter of fiscal 2020 | Actual for the fourth quarter of fiscal 2019 | Actual for the fourth quarter of fiscal 2018 | |
| Earnings per share ($) | 3.16 | 2.56 | 2.38 |
| Revenue ($B) | 26.3 | 21.1 | 16.9 |
| Monthly active users (B) | 2.7 | 2.5 | 2.3 |
Source: visible alpha
As mentioned, investors will be looking closely at Facebook’s MAU, which is the number of unique individual users visiting a site over a one-month period. MAU is a measure of how many people see the ads that Facebook sells, and therefore how much money the company can earn from selling ads depends on MAU. As Facebook’s MAU continues to grow, a general slowing trend is to be expected. Indeed, Facebook has already deeply saturated most of the global consumer markets and has around 2.7 billion MAUs. As a result, rapid growth becomes more difficult to achieve from such a broad base.
Facebook’s MAU has grown every quarter for at least three years. Overall, however, there has been a gradual slowdown in the growth rate of the MAU over this period. Fourth quarter annual MAU growth slowed from 14.5% in the fourth quarter of fiscal 2017 to 9.0% in the fourth quarter of fiscal 2018 to 7.6% in the fourth quarter of fiscal 2019. For the fourth quarter of fiscal 2020, analysts forecast a slight increase in MAU growth to 9.1%. That’s a higher growth rate than every quarter in 2019, but slower than the first three quarters of fiscal 2020.
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