What To Expect From Facebook For 2018 After Revenue, EPS Beats Estimates

Facebook (NASDAQ:FB) announced its Q1 results on Wednesday, April 25, reporting a massive 49% year-over-year increase in revenues to just under $12 billion. In addition, operating income jumped 64% to $5.5 billion, due to which net income was also up 63% y-o-y to just under $5 billion. As a result, Facebook beat EPS consensus estimates by almost 30 cents a share to report net income per share of $1.69 for the quarter. A strong set of quarterly results was a major positive for Facebook shareholders after a difficult month following the developments related to the data leak scandal, with data of around 87 million profiles harvested by Cambridge Analytica. It should be noted that these developments happened toward the end of the quarter, due to which they were unlikely to have a material impact on results for the quarter.

Going forward, there are two major factors that will impact full year results for Facebook. First, the European Union’s General Data Protection Regulation (GDPR) will go into effect in May, which could have a slightly negative impact on user growth and ARPU improvement for Facebook in the region. Earlier this year, Facebook introduced a new privacy center for users from Europe following GDPR guidelines. However, Facebook decided to shift responsibility of around 1.5 billion users (mainly from Asia-Pacific, Africa and Latin America) away from its international headquarters in Ireland to its main offices in California. While this could help the company avoid further scrutiny and legal liabilities under the GDPR, it could hamper monetization potential as well as user growth in Europe.

Secondly, the company intends to increase operating expenditures through the year by 50-60%, particularly in the areas of security, content acquisition and long-term innovation efforts. Since the increase in operating expenses will likely outpace revenue growth, margins are expected to compress through the year. We have used these two factors in our full year forecasts for the company. We have summarized our expectations on our interactive dashboard platform. We have a conservative estimate for revenue growth, while our EPS forecast is close to the higher end of consensus estimates. If you disagree with our forecasts, you can change the key drivers – such as active users and average revenue per user (ARPU) – for Facebook to gauge how changes will impact its expected revenue. You can also change expected margins to arrive at the expected EPS for the full year.

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