Facebook Q1: Growth Continues, Management Expectations Look Conservative

Facebook (NASDAQ:FB) reported its Q1 earnings on April 24. The company beat consensus expectations across revenue and earnings. Despite the issues around privacy, the company grew its monthly active user (MAU) base by another 55 million users sequentially to 2.375 billion and revenues to $15.1 billion (+26% y-o-y).  The biggest impact of privacy concerns and regulation seems to have culminated into a legal expense provision of $3 billion. The markets, however, cheered the numbers, with the stock up by around 9% in post-market trading.

We have increased our price estimate for the company to $189 per share which is slightly lower than the post-market rally price. Our interactive dashboard on Facebook’s Price Estimate outlines our forecasts and estimates for the company. You can modify any of the key drivers to visualize the impact of changes on its valuation, and see more Trefis technology company data here.

Highlights From Facebook’s Q1

• MAUs grew to 2.38 billion (+8% y-o-y, +2% q-o-q), and the Facebook family of services (Facebook, Instagram, WhatsApp and Messenger) is now used by over 2.1 billion people on a daily basis and 2.7 billion people on a monthly basis.
• ARPU grew to $6.35 (+17% y-o-y). The company expects that the evolution of the regulatory landscape, people opting out of third-party apps and changes in the core Facebook’s platform will likely pose headwinds for pricing in the second half of the year.
• Advertising revenue grew to $14.6 billion (+26% y-o-y). Part of the weaker revenue growth can be attributed to a mix shift towards Stories, where pricing remains weaker than the feed. The current growth in impressions is currently keeping the pricing down. However, as the demand for Stories increases, this near-term headwinds should turn into a sustainable tailwind for growth over the longer term. While management expects the pricing growth to take years and not quarters, we believe the network effects enjoyed by Facebook will likely make management’s assumptions look conservative two to three quarters down the line.
• Revenue from payments and other fees declined to $165 million (-4% y-o-y).
• Capex increased to $3.9 billion (+36% y-o-y), with the company updating its full year expectation to $17 billion.
• The company provisioned $3 billion as legal expenses in connection with the inquiry of the FTC into Facebook’s platform and user data practices. Facebook expects this amount may rise to $5 billion.

We believe that management is being conservative with its expectations, using the benefit of regulatory concerns and privacy related investments. Despite impending changes in the core Facebook platform (clearing history on Facebook, etc.), the increased engagement (also translating into higher ad impressions) in Stories and sustained MAU growth clearly points towards the stickiness of the platform. Accordingly, we have revised our price estimate upwards to $189.

Do not agree with our forecast? Create your own price forecast for Facebook by changing the base inputs (blue dots) on our interactive dashboard.