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Facebook – beats expectations, but growth to slow

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Sophie Lund-Yates, Equity Analyst | 29 April 2021 |

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Facebook - beats expectations, but growth to slow

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Facebook‘s first quarter revenues came in at $26.2bn, up 48% year-on-year and well ahead of market expectations. That was driven by 46% growth in advertising revenue.

As a result, operating profits nearly doubled, rising 93% to $11.4bn and was again much higher than analysts expected, with similar growth in earnings per share.

Revenue growth is expected to slow significantly in the latter half of the year, as the group laps periods of strong growth in 2020, and regulatory and platform changes come into effect.

The shares rose 6.2% in after-hours trading.

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Our view

Put simply, Facebook has knocked it out the park. Advertising revenue has shot up, again, and profits have come along for the ride.

Advertising revenue is Facebook’s bread and butter, with marketing teams paying handsomely to make the most of the data footprints users leave behind. With around half the world’s population logging onto one of Facebook’s apps (the obvious one, plus Instagram and WhatsApp), Facebook’s significance isn’t going anywhere.

Revenues have more than recovered from the blip caused by the early stages of the pandemic, and the focus now is on the future. As one Facebook analyst put it, “Covid has accelerated the obvious…everything is going digital.” Which means an accelerated shift to online shopping – a higher margin source of ad revenue for Facebook. And the group is far more exposed to shopping than service advertising – like travel. The tailwinds will make comparisons more difficult, but is still a net positive in our opinion.

Added to that, the current disruption means increased screen time as millions of us are stuck and bored at home. The read across for Facebook and its stable of social media platforms is increased engagement with the likes of the flagship Facebook site, as well as Messenger, Instagram and WhatsApp. This in turn boosts Facebook’s appeal to advertisers as it hoovers up more of our data, feeding the business case.

As ever though, you have to spend to stay ahead in tech, which is reflected in an ever-increasing research and development budget. Despite this, profits are still growing – but if revenues are expected to mellow a little, margins are likely to come under pressure in the short to medium term. The group is spending heavily on its data centres and networks in particular.

Facebook’s huge scale means increased investment is needed to keep regulators happy – particularly around security and compliance measures. President Biden’s open mistrust of the social media giant is something to consider. He’ll want to place his stake in the ground, so further investigations and even fines in the medium term are possible. Changes to the Apple operating system and increased European regulation both have the potential to disrupt ad revenues too.

We think the core business remains attractive because of Facebook’s unrivalled reach into our lives. With that strength in mind, the share price valuation is also worth considering. However, investors need to be prepared to accept the external risks – Facebook’s firmly in the political spotlight so ups and downs are likely.

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Facebook key facts

  • Price/Earnings ratio: 25.3
  • Average Price/Earnings ratio since listing (2012): 32.0
  • Prospective dividend yield (next 12 months): 0.0%

All ratios are sourced from Refinitiv. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn’t be looked at on their own – it’s important to understand the big picture.

First quarter trading details

Revenue growth was powered by higher average ad prices, up 30% year-on-year, with a 12% increase in ads delivered. Facebook reported an 8% rise in Daily Active Users (DAUs) to 1.88bn, while Monthly Active Users hit 2.85bn up 10% year-on-year. At a family level, which includes Instagram and WhatsApp, monthly active users hit 3.45bn.

Average revenue per user (ARPU) now stands at $9.27, up from $6.95 last year, although lower than the $10.14 seen last quarter. This trend was seen across all regions, and the US & Canada remain the most lucrative region with ARPU of $48.03. Europe, Asia-Pacific and Rest of World have ARPU of $15.59, $3.94 and $2.64 respectively.

Facebook continues to invest heavily in future growth, with capital expenditure rising 20% to $4.3bn and headcount rising 26% year-on-year to 60,654.

The group reported free cash flow of $8.0bn, up from $7.4bn a year ago. During the quarter Facebook repurchased $3.9bn of shares. Net cash rose from $62.0bn at the start of the year to $64.2bn.

Management expects second quarter revenue growth to remain stable or modestly accelerate compared to the first quarter.

Find out more about Facebook shares including how to invest

This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research for more information.

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What Do Facebook Ads Have To Do With The Uyghur Genocide?

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In recent months, several reports suggested a concerning link between Facebook ads and the Uyghur genocide. In March 2021, Epoch Times reported on “evidence linking Facebook ad revenue to Chinese companies profiting from that genocide.” They indicated that one of the companies “continues selling through Facebook hair it admitted was from Uyghurs. Similar companies ‘suggested’ by the social media platform appear also to be selling Uyghur hair. Since a woman’s long hair is highly valued in Uyghur culture, the hair products being sold are almost certainly a product of the ongoing persecution, and not donated or sold freely.” These allegations come months after, in August 2020, the U.S. Customs and Border Protection (CPB) seized over 13 tons of human hair products from Xinjiang. 

In this photo illustration a Facebook logo seen displayed on...

In this photo illustration a Facebook logo seen displayed on a smartphone. (Photo Illustration: … [+] Rafael Henrique/SOPA Images/LightRocket via Getty Images)

SOPA Images/LightRocket via Getty Images

Facebook did not respond to these allegations that it profited from ads linked to Uyghur genocide. Yet it did not take long before Facebook became the centre of attention again, because of its links with the Chinese Communist Party (CCP) which stands accused of committing genocide against the Uyghurs.

In April 2021, the WSJ reported that “some Facebook staff are raising concerns on internal message boards and in other employee discussions that the company is being used as a conduit for state propaganda, highlighting sponsored posts from Chinese organizations that purport to show Muslim ethnic minority Uyghurs thriving in China’s Xinjiang region, according to people familiar with the matter.” Reportedly, “a Facebook spokesman said that the ads taken out by Beijing pertaining to Xinjiang don’t violate current policies so long as the advertisers follow Facebook’s rules when purchasing them. He said the company is monitoring reports of the situation in Xinjiang ‘to help inform our approach and due diligence on this issue.’”

WSJ further reported that “Facebook hasn’t determined whether to act on the concerns, say people familiar with the matter. The company is watching how international organizations such as the United Nations respond to the situation in Xinjiang, one of the people said. The U.N. this week called on firms conducting Xinjiang-linked business to undertake “meaningful human rights due diligence” on their operations.”

Such responses to very serious allegations of benefiting from Uyghur genocide are highly inadequate. We are talking about atrocities targeting a religious group with methods including torture and abuse, rape and sexual violence, separation of children from their parents, forced sterilizations, forced abortions, forced labor and much more.

Waiting for the response from the U.N. cannot be seen as the right policy to address serious allegations of genocidal atrocities, especially considering stagnation at the U.N. and China’s powerful position there. While States and U.N. experts have been calling for action, and among others, for unfettered access to Xinjiang, this request has been ignored by the Chinese government. And so the vicious circle of impunity continues.

One would expect that Facebook would conduct a comprehensive review of the allegations and evidence in support. Ultimately, Facebook should make sure that they sever any ties with atrocities against the Uyghurs.

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Eutelsat Expands Use of Express Wi-Fi in Partnership With Facebook to Extend Wi-Fi Connectivity …

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PARIS–()–Regulatory News:

Eutelsat Communications (Paris:ETL) (Euronext Paris: ETL) is expanding its use of the Express Wi-Fi platform in partnership with Facebook to provide broadband services via satellite across several regions in Sub-Saharan Africa. With Express Wi-Fi, Eutelsat aims to connect thousands of people in rural and underserved communities spanning Democratic Republic of Congo (DRC), Nigeria, Côte d’Ivoire, Tanzania, Uganda, Zambia, Kenya, Madagascar, South Africa, Cameroon, Ghana and Zimbabwe.

Express Wi-Fi is a platform developed by Facebook Connectivity that enables partners to build, grow and monetize their Wi-Fi businesses in a scalable way, while providing their customers with fast, affordable, and reliable internet access. Express Wi-Fi is used in more than 30 countries, including in multiple Asian, South American and African markets, helping millions of people connect over Wi-Fi.

Eutelsat and Facebook have previously conducted successful pilots in rural and underserved areas of the Democratic Republic of Congo (DRC) enabling local businesses to offer affordable internet access to customers on a pre-paid basis. To date, Eutelsat’s use of the Express Wi-Fi platform has enabled access to affordable broadband for thousands of individuals across the DRC.

Philippe Baudrier, General Manager of Konnect Africa commented: “We are delighted to partner with Facebook in this ambitious scheme, aimed at getting more people online in the most underserved areas of sub-Saharan Africa. This initiative is the perfect example of the power of satellite connectivity to bridge the digital divide, with unmatched economic and social benefits. We are proud once again to leverage the unparalleled coverage of EUTELSAT KONNECT to satisfy this growing demand.”

“At Facebook, we’re committed to working with partners to help expand connectivity in Sub-Saharan Africa, which continues to be the region with the highest coverage gap,” said Fargani Tambeayuk, Head of Connectivity Policy for Sub-Saharan Africa, Facebook. “Connectivity is essential to ensuring access to jobs, education, healthcare and more. We’re proud to partner with Eutelsat to combine the power of the Express Wi-Fi platform and EUTELSAT KONNECT, with the goal of increasing satellite broadband coverage across rural and underserved areas of Sub-Saharan Africa.”

About Eutelsat Communications


Founded in 1977, Eutelsat Communications is one of the world’s leading satellite operators. With a global fleet of satellites and associated ground infrastructure, Eutelsat enables clients across Video, Data, Government, Fixed and Mobile Broadband markets to communicate effectively to their customers, irrespective of their location. Over 6,600 television channels operated by leading media groups are broadcast by Eutelsat to one billion viewers equipped for DTH reception or connected to terrestrial networks. Headquartered in Paris, with offices and teleports around the globe, Eutelsat assembles 1,000 men and women from 46 countries who are dedicated to delivering the highest quality of service.

For more about Eutelsat go to www.eutelsat.com

About Facebook Connectivity


Connectivity is at the heart of Facebook’s mission to give people the power to build community and bring the world closer together. Critical to this mission is high-quality internet access, which gives people a voice and creates opportunities to share knowledge that can strengthen local communities and global economies. Facebook Connectivity works closely with partners including mobile network operators, equipment manufacturers and more to develop programs and technologies—including Express WiFi, Magma and Terragraph—that increase the availability, affordability and awareness of high-quality internet access, bringing more people online to a faster internet. To learn more, visit: https://connectivity.fb.com

www.eutelsat.com – Follow us on Twitter @Eutelsat_SA

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Facebook Removes Ukraine’s ‘Fake’ Political ‘Influence-for-hire’ Network

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Reuters Photo

Reuters Photo

Facebook attributed the network to individuals and entities including politician Andriy Derkach, a pro-Russian lawmaker blacklisted by the United States.

  • Reuters
  • Last Updated:May 07, 2021, 14:04 IST
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Facebook Inc (FB.O) has taken down a network of hundreds of fake accounts and pages targeting people in Ukraine and linked to individuals previously sanctioned by the United States for efforts to interfere in U.S. elections, the company said on Thursday. Facebook said the network managed a long-running deceptive campaign across multiple social media platforms and other websites, posing as independent news outlets and promoting favourable content about Ukrainian politicians, including activity that was likely for hire. The company said it started its probe after a tip from the FBI.

Facebook attributed the activity to individuals and entities sanctioned by the U.S. Treasury Department including politician Andriy Derkach, a pro-Russian lawmaker who was blacklisted by the U.S. government in September over accusations he tried to interfere in the 2020 U.S. election won by President Joe Biden. Facebook said it removed Derkach’s accounts in October 2020.

Derkach told Reuters he would comment on Facebook’s investigation on Friday.

Facebook also attributed the network to political consultants associated with Ukrainian politicians Oleh Kulinich and Volodymyr Groysman, Ukraine’s former prime minister. Kulinich did not immediately respond to a request for comment. Groysman could not immediately be reached for comment.

Facebook said that as well as promoting these politicians, the network also pushed positive material about actors across the political spectrum, likely as a paid service. It said the activity it investigated began around 2015, was solely focused on Ukraine and posted anti-Russia content.

“You can really think of these operators as would-be influence mercenaries, renting out inauthentic online support in Ukrainian political circles,” Ben Nimmo, Facebook’s global influence operations threat intelligence lead, said on a call with reporters.

Facebook’s investigation team said Ukraine, which has been among the top sources of “coordinated inauthentic behaviour” that it removes from the site, is home to an increasing number of influence operations selling services.

Facebook said it removed 363 pages, which were followed by about 2.37 million accounts, and 477 accounts from this network for violating its rules. The network also spent about $496,000 in Facebook and Instagram ads, Facebook said.

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