What To Expect From Facebook’s Q1 Results

Facebook (NASDAQ:FB) is scheduled to report its Q1 results on Wednesday, April 24. In addition to updates on the company’s roadmap towards protecting user privacy in response to its numerous recent controversies, commentary around user growth and advertising ROI will be of interest to investors. This note details what to expect, and what Trefis will be watching when the company reports earnings.

Trefis currently has a price estimate of $170 per share for Facebook, which is slightly lower than the current market price. Our interactive dashboard What Is Facebook’s Q1 Outlook? outlines our key forecasts and estimates for the company. You can modify any of the key drivers to visualize the impact of changes, and see all Trefis technology company data here.

How Have Facebook’s Revenues And Metrics Trended, And What’s The Q1 Outlook?

• Facebook’s Total Revenues have continued to see strong growth, reaching nearly $56 billion in 2018 (year-on-year growth of 37%). For Q4, the year-on-year revenue growth stood at around 30%.
• This growth has been driven by growth in both monthly active users (MAUs) and average revenue per user (ARPU), which saw Q4 increases of 9% and 21%, respectively, on a year-on-year basis.
• Much of the company’s user base growth has come from the Asia-Pacific and Rest of World segments, which we expect to continue going forward.
• For Q1 2019, consensus revenue expectations stand at nearly $15 billion, which would represent year-on-year growth of about 25%, while EPS expectations stand at $1.63.

What Are Facebook’s Key Revenue And Value Drivers To Watch In Q1? 

Key Driver #1: Monthly Active Users

This represents the number of users who access their Facebook accounts at least once per month globally.

• Facebook’s Monthly Active User base increased by 9% in Q4 2018 to reach 2.3 billion. This was driven largely by rapid growth in the Asia-Pacific and Rest of World segments.
• We expect Facebook’s Monthly Active Users to see similar growth to Q4 2018, and over the long run we forecast its user base to reach 2.5 billion by the end of 2020.

Key Driver #2: Advertising ARPU

This represents the average advertising revenue generated by Facebook per monthly active user. Ad revenues account for around 98% of Facebook’s total revenues.

• Facebook’s Advertising ARPU reached $7.37 in Q4 2018, up nearly 20% year-on-year driven by strong y-o-y growth across geographies.
• We forecast the company’s Advertising ARPU to continue increasing going forward, albeit at a more moderate pace due to privacy-related concerns and regulation.

Key Driver #3: Operating Margin

This represents Facebook’s operating income (revenues less operating expenses) as a percentage of its revenues. Operating expenses include cost of sales, research & development costs, marketing & sales and general & administrative expenses.

• Research & development expenses account for the largest portion of Facebook’s operating expenses, and stood at 17% of revenues in Q4 2018.
• Facebook’s operating margin stood at 46% in Q4 2018, down from 57% in Q4 2017, due to significant increases across cost of revenues, R&D, G&A and S&M expenses.

Key Driver #4: Capital Expenditures

This includes expenditures related to purchases of property, plant and equipment. For Facebook, this largely entails the purchase of servers, networking equipment, storage infrastructure and the construction of data centers.

• Facebook’s Capital Expenditures stood at $4.4 billion in Q4 2018, up from $2.3 billion in Q4 2017.
• Going forward, we expect Facebook’s Capital Expenditures to stand at around 20% of revenues.

How Will Privacy Issues Impact Facebook’s Earnings And Valuation?

• Facebook has faced a litany of issues related to its treatment of user data, and is likely to see continued regulatory scrutiny related to its privacy practices.
• If Facebook’s ability to harvest and utilize user data for advertising purposes is hampered by regulation or further controversy, it could put some pressure on the company’s ARPU and ad revenues going forward.