ii view: record high for Facebook amid boom in ad pricing

Results beat forecasts and revenue for both advertising and VR gaming motored ahead. Buy, sell or hold?

Fourth-quarter results to 31 December

• Total revenue up 48% to $26.2 billion
• Net income up 94% to $9.5 billion
• Earnings per share up 93% to $3.30
• Cash and cash equivalents of $64.22 billion

Guidance:

• Expects Q2 year-over-year total revenue growth to remain stable or modestly accelerate
• For Q3 and Q4 2021, expects year-over-year total revenue growth rates to significantly decelerate sequentially as it laps periods of increasingly strong growth

Chief executive Mark Zuckerberg said:

"We had a strong quarter as we helped people stay connected and businesses grow. We will continue to invest aggressively to deliver new and meaningful experiences for years to come, including in newer areas like augmented and virtual reality, commerce, and the creator economy." 

ii round-up:

Social media giant Facebook (NASDAQ:FB) reported quarterly sales and earnings that trashed Wall Street forecasts.

Advertising revenues rose by 46% to $25.3 billion. That's because of corporate demand to reach its users which drove a 12% increase year-over-year in ad numbers and a 30% increase in the average price per ad purchased. Earnings per share of $3.30 easily surpassed analyst estimates for nearer to $2.40. 

Facebook shares rose by more than 6% in after-hours US trading following the results, and have hit a record high during regular trading Thursday. This emulates a similar share price jump from rival online advertising provider and Google owner Alphabet (NASDAQ:GOOGL) the day before. 

Monthly active users at Facebook rose by 10% year-over-year to 2.85 billion. Daily active users gained by 8% to 1.88 billion.

Accompanying management outlook comments pointed to stable or modestly accelerating revenue growth during the current second quarter, but likely slowing rates of growth over the third and fourth quarters as its laps demand pick-ups in the second half of 2020. 

Facebook shares have more than doubled since pandemic market lows in March last year. Shares for Alphabet has also more than doubled, while more traditional advertiser WPP (LSE:WPP) has also about doubled in value. 

Facebook also again cautioned regarding recent software changes made by Apple (NASDAQ:AAPL) which are expected to hinder ad targeting going forward, along with transatlantic data transfers given recent European regulatory developments.

Sales or revenues away from its core advertising rose by 146% year-over-year to $732 million. These largely related to its virtual reality gaming Oculus Quest VR headset. 

Facebook’s annual shareholder meeting is scheduled for 26 May. 

ii view:

Group apps include Facebook, Instagram, Messenger, and WhatsApp. Recent Facebook innovations include Facebook Pay and Facebook Shops, designed to enable consumers to purchase goods via its adverts but without leaving its apps.

For investors, changes by Apple, tougher comparatives later this year and a potential return to the shops over coming months, and away from pandemic driven home online shopping, need to be considered. Government and regulatory concerns regarding Facebooks influence over such events as elections and misinformation have also not disappeared. 

But these latest results again underline Facebook's importance to corporate advertisers. Cash and cash equivalents of $64 billion should not be overlooked either. Neither should growing demand and investment at the company regarding its virtual reality Oculus Quest gaming business. In all, and despite some required caution, long-term prospects for Facebook appear favourable, with analysts currently estimating a fair value share price of over $330 each. 

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