ii view: Facebook figures exceed forecasts

Despite data privacy concerns, business continues to grow. Daily active users rose by 9%.

Third-quarter results to 30 September 2019

• Total revenue up 29% to of $17.65 billion
• Net income up 19% to $6.1 billion
• Earnings per share down 20% to $2.12
• Cash and cash equivalents of $52.27 billion

Chief Executive Mark Zuckerberg said:

“We had a good quarter and our community and business continue to grow. We are focused on making progress on major social issues and building new experiences that improve people's lives around the world.”

ii round-up:

Social media giant Facebook Inc A (NASDAQ:FB) reported third-quarter results which surpassed analyst expectations. 

Earnings per share of $2.12 beat the consensus estimate of $1.91 (source: Refinitiv) with net income jumping 19% to $6.1 billion. 

The company, which has come under intense government scrutiny given concerns for data privacy, reported a 9% jump in daily active users to 1.62 billion and an 8% improvement in monthly active users to 2.45 billion. Adding in users of its other apps such as Instagram, WhatsApp, or Messenger, monthly users rises to 2.8 billion. 

Mobile advertising revenue now accounts for approximately 94% of advertising revenue, up from approximately 92% of advertising revenue in the prior year quarter. 

In a move to calm broad concerns over the misuse of its platform, employee headcount including staff to facilitate more checking of media posts jumped by 28% year-over-year to 43,030. 

New product launches are ongoing. It recently launched Facebook News a new section of the social network that shows users a personalized selection of news stories. Plans to introduce a new cryptocurrency known as Libra remain on the drawing board. 

The group’s share price rose by more than 4% in after-hours US stock market trading. 

ii view:

Despite data privacy challenges, Facebook as a platform for human interaction looks to be here to stay. Plans to create a new digital currency could elevate it further as a staple of daily smartphone usage. Its grasp over advertising revenues is still growing, up 28% during the third-quarter. 

From an investment perspective, a significant cash holding and a forward price earnings ratio of 23 and below the three-year average of 30.1 offer some attraction. Facebook is a significant business offering exposure to a segment of the global economy that you cannot get access to elsewhere. Of course, a 40%-plus gain in the share price since the start of the year does provide for some caution, and the argument over tech sector valuations rumbles on.  

Positives

• Over 2 billion monthly active users
• Planning to launch a digital currency
• Significant cash balance held

Negatives

• A series of scandals have hit the company
• Government scrutiny in relation to the big tech companies has increased
• Concerns regarding governance and the future of Mark Zuckerberg as CEO overhang

The average rating of stock market analysts:

Strong buy