ii view: Facebook generates solid growth but outlook is cautious

Heightened online engagement during the pandemic makes this company difficult to ignore. 

Third-quarter results to 30 September

• Total revenue up 22% to of $21.5 billion
• Net income up 29% to $7.85 billion
• Earnings per share up 28% to $2.71
• Cash and cash equivalents of $55.62 billion

Chief executive Mark Zuckerberg said:

"We had a strong quarter as people and businesses continue to rely on our services to stay connected and create economic opportunity during these tough times. We continue to make significant investments in our products and hiring in order to deliver new and meaningful experiences for our community around the world."

ii round-up:

Social media giant Facebook (NASDAQ:FB) delivered sales and profits which exceeded Wall Street expectations in these latest results, but it also flagged falling users in its key North American market. 

Quarterly sales and earnings of $21.5 billion and $2.71 per share respectively beat estimates of nearer to $20 billion and $2 per share. But while overall global monthly users rose to 2.74 billion, users in its key revenue generating North American market lower than the prior quarter. 

Facebook shares drifted marginally lower in post results US trading but they are up by just over a quarter year-to-date. Business is buoyed by a push from the pandemic as populations moved to work and shop even more from home, and as businesses look to capture consumption via online advertising. Shares of Twitter (NYSE:TWTR) are up by a similar amount to Facebook in 2020. Shares of Pinterest (NYSE:PINS) are up over 200%.

Advertising accounts almost entirely for Facebook revenues. Other revenue includes sales of its Oculus Quest virtual gaming hardware. Orders for Oculus Quest 2 have proved strong. 

Cautious accompanying management outlook comments referenced significant uncertainty going into 2021, with any cooling in the pandemic push acting as a headwind. Possible regulatory changes and impending privacy changes by Apple (NASDAQ:AAPL) also feed into the potential mix. 

Staff numbers year-over-year rose by 32% to just over 56,600 as the company continued to battle any misinformation across its platform. Facebook remains in the regulatory spotlight due to its perceived influence in the 2016 US elections and how the platform might play into the current presidential race. 

ii view:

Despite data privacy challenges, Facebook as a platform for human interaction looks here to stay. Its apps include Facebook itself, Instagram, Messenger, and WhatsApp. Daily active users averaged 1.82 billion during September, an increase of 12% year-over-year. Facebook and Alphabet (NASDAQ:GOOGL) continue to dominate the digital advertising market. 

For investors, regulatory concerns and ongoing interest in its influence and workings from governments around the world, cannot be ignored. Cautious outlook comments given the tough comparatives it faces also offer reason for restraint. But for business customers keen to reach a particular social group, Facebook remains high on the list of providers. In all, while some caution is understandable given the US presidential election, the group’s status as the leading social media player leaves it firmly on the watch list for many global investors.  

Positives

• Monthly active users across its apps is approaching 3 billion
• Significant cash balance held

Negatives

• A series of scandals have hit the company
• Government scrutiny in relation to the big tech companies has increased

The average rating of stock market analysts:

Strong buy