ii view: Facebook revenue keeps growing
Social media colossus Facebook will pay a $5 billion fine, but the business is growing fast.
25th July 2019 10:31
Social media colossus Facebook will pay a $5 billion fine, but the business is growing fast.
Second quarter results
- Revenue up 28% to $16.9 billion
- Net income down 49% to $2.6 billion
- Earnings per share down 48% to 91 cents
Chief executive Mark Zuckerberg said:
"We had a strong quarter and our business and community continue to grow. We are investing in building stronger privacy protections for everyone and on delivering new experiences for the
people who use our services."
ii round-up:
Founded in 2004 by Mark Zuckerberg, social media giant Facebook (NASDAQ:FB) now has a network of global offices and data centres. As well as Facebook, brands include Instagram, Messenger and WhatsApp. Revenue is generated almost entirely from advertising placed across its platforms.
Facebook is in the process of building a library of premium content and monetising it via ads or subscription revenue to be called Facebook Watch. It is also working on a number of different projects that could benefit from having an Artificial Intelligence (AI) voice assistant.
It had an impressive 2.41 billion monthly active users on its platform as of the end of June 2019.
Management has made a big move toward privacy, promising that messaging on Facebook and Instagram in the next few years will be encrypted, as it is now on WhatsApp.
An investigation into the company's data practices by the US Federal Trade Commission (FTC) has overshadowed things. A fine of $5 billion is now to be paid.
Second-quarter results broadly exceeded analyst expectations. Advertising revenues grew strongly, up 28%, while average revenue per user increased 18% to $7.05 from $5.97 a year ago.
ii view:
Despite data privacy challenges, Facebook as a platform for human interaction is clearly here to stay. It can also easily afford the FTC's hefty fine. 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.
From an investment prospective, a significant cash holding and a forward price earnings (PE) ratio of 26.4, below its three year average of 30.8, 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 50%-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:
Buy
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