Facebook Earnings: What to Look For From FB

Facebook Inc. (FB) is coming off of two consecutive quarters of robust profit and revenue gains, and now is focusing on the next phase of longterm growth for the company. Chief Executive Officer (CEO) Mark Zuckerberg says that growth will be driven by the “metaverse,” an expansive virtual world that will be a successor to the mobile internet and fuel a new wave of technology investment. In the virtual metaverse, for example, people would be able to try on apparel featured in stores or go to concerts with friends, just as they would in the real world. Facebook plans to create as many as 10,000 jobs in the European Union over the next five years to build the metaverse.

Investors are likely to focus both on Facebook’s recent financial performance and future growth plans when the company reports earnings on Oct. 25, 2021 for Q3 FY 2021. Analysts expect earnings per share (EPS) and revenue to grow at a rapid pace, albeit slowing from the pace in recent quarters.

Investors will also be focusing on Facebook’s monthly active users (MAUs), a key metric that measures the size of the company’s user base. Analysts expect the company’s MAUs to rise compared to the year-ago quarter, but the pace of growth is expected to slow.

Shares of Facebook have underperformed the broader market over the past year. The stock outperformed from about late May to early October after lagging the market for most of the the last 12 months. But in recent weeks the stock has begun to underperform the market again. Facebook’s shares have provided a total return of 27.4% over the past year, below the S&P 500’s total return of 31.8%.

Facebook Earnings

Facebook reported Q2 FY 2021 earnings that beat analysts’ estimates. EPS rose 100.9% compared to the year-ago quarter, the fastest pace since Q1 FY 2020. Revenue grew 55.6% YOY, the fastest pace since the third quarter of FY 2016. The company said in its earnings report that it expects third and fourth quarter results to decelerate significantly on a sequential basis.

In Q1 FY 2021, Facebook reported earnings and revenue that beat consensus estimates. EPS increased 92.8% YOY, accelerating for the second straight quarter in a row. Revenue expanded 47.6% compared to the year-ago quarter, marking the fastest pace of growth since Q1 FY 2018. In its earnings report, the company highlighted its strong ad revenue growth, which was driven by increases in the average price per ad as well as the total number of ads delivered.

Analysts expect Facebook’s earnings and revenue to continue growing in Q3 FY 2021, albeit at a decelerating pace compared to recent quarters. EPS is expected to rise 17.7%, the slowest growth in seven quarters. And revenue is expected to rise 37.6%, a deceleration from the previous two quarters. For full-year FY 2021, EPS is expected to increase 40.1%, slowing from a pace of 57.1% in FY 2020. Annual revenue is expected to expand 39.1%, which would be the fastest pace of growth since FY 2017.

^{Source: Visible Alpha; Facebook (Q3 FY 2020; Q3 FY 2019).}

The Key Metric

As mentioned above, investors will also be focused on Facebook’s MAUs, a key metric providing a measure of the size of the company’s global active user base. Facebook defines a MAU as a registered and logged-in user who visited Facebook through its website or a mobile device, or used its Messenger app sometime during the 30 days of the measurement period. Facebook derives the majority of its revenue through selling advertising space on its social media sites and apps to marketers. The bigger its user base, the more attractive its platform is to advertisers. A bigger user base also makes it easier to attract new users as people want to be on Facebook because their friends are on it, a classic example of the network effect. Another related metric is Facebook’s average revenue per user (ARPU), a gauge of how well the company is monetizing its user base.

Facebook’s MAUs have continued to grow over the past several years, but the pace has gradually slowed. MAUs rose 16.8% in FY 2016 to a total of 1.9 billion. By FY 2019, total MAUs were 2.5 billion, and the pace of annual growth had slowed to 7.6%. Growth in MAUs accelerated in FY 2020 to 12.0% amid the pandemic as people spent more time online while sheltering at home. But it has been decelerating again in FY 2021, slowing to a pace of 9.6% in the first quarter and again to 7.4% in the second. Analysts expect growth to slow to a pace of 6.6% in Q3 FY 2021.