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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.
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.
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.
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.
Facebook-Meta Earns the ‘Worst Company of 2021’ Title in This Survey
Facebook parent Meta has been named the Worst Company of the Year (2021) by Yahoo Finance respondents. According to the publication, an “open-ended” survey was published on Yahoo Finance on December 4 and 5, where 1,541 respondents participated. Facebook received 8 percent of the write-in vote, but respondents were seemingly mad about the Robinhood trading app as well. Electric truck startup Nikola, which was named last year’s worst company by the same publication also faced respondents ire.
Yahoo Finance even highlights, “At the same time, some critics, including conservatives, say Facebook over-policed the platform’s speech and stifled their voices.” Critics also blame Facebook and other social media platforms for not curbing hate speech that led to Capitol Building riots.
However, around 30 percent of Yahoo Finance readers said that Facebook or Meta could redeem itself. One respondent suggested that the company could issue a formal apology for negligence and donate a sizable amount of its profits to a foundation to help reverse its harm.
On the other hand, respondents chose Microsoft as the Company of the Year (2021). The Satya Nadella-led company touched the trillion-mark this year and introduced notable upgrades. The most notable is the Windows 11 OS update that succeeds Windows 10.
Facebook pays 1.7 Cr fine to Russia after failing to delete content Moscow deems illegal
In the latest legal tussle with Russia over controversial social media regulation laws, Facebook paid 17 million roubles (Rs 1.7 Crore) for failing to remove content deemed illegal by Moscow. With a threat of potential larger fines looming, Facebook parent company Meta, owned by Mark Zuckerberg, is scheduled to face court next week over repeated violations of Russian legislation on content, Interfax News Agency reported. As per the latest updates, the social media giant could be fined a percentage of its annual revenue.
In October, Moscow sent state bailiffs to enforce the collection of 17 million roubles. Meanwhile, as per Interfax report citing a federal bailiffs’ database, on Sunday, there were more enforcement proceedings against the company. Apart from the popular social media app, Telegram has also paid 15 million roubles in fines for failing to comply with the Russian social media legislations that came into force in 2016.
Facebook pays $53k to Russia for refusing controversial social media laws
It is pertinent to mention that Facebook has locked horns with Moscow earlier in November, resulting in it paying 4 million roubles ($53,000) over its refusal to adhere to Russian data localisation laws, the Moscow Times reported. The Moscow court on November 25 had said that Facebook paid the fine levied in February, following which all proceedings against the US-based social media giant. The payment comes against the litigation filed against the company in 2018, alongside Twitter. The tech companies were also forced to pay an additional 3000 rubles ($40) for failing to comply with user data sharing rules as per the law. The Russian authorities have also previously blocked LinkedIn, owned by Microsoft, for failing to abide by the laws.
Russian social media laws
As per Moscow Times, under the Russian social media regulation laws, all foreign technology companies are required to store data related to Russian customers and users on servers located in Russia. Additionally, the Russian tech companies will also have to share encryption data with the federal authorities as well as record user calls, messages and civil society group conversation records. The apparatus is said to be a severe breach of privacy rights and unfettered back-door access to personal data that could be used to harass Kremlin critics.
Facebook Messenger Is Launching a Split Payments Feature for Users to Quickly Share Expenses
Meta has announced the arrival of a new Split Payments feature in Facebook Messenger. This feature, as the name suggests, will let you calculate and split expenses with others right from Facebook Messenger. This feature essentially looks to bring an easier method to share the cost of bills and expenses — for example, splitting a dinner bill with friends. Using this new Split Payment feature, Facebook Messenger users will be able to split bills evenly or modify the contribution for each individual, including their own.
The company took to its blog post to announce the new Split Payment feature in Facebook Messenger. 9to5Mac reports that this new bill splitting feature is still in beta and will be exclusive to US users at first. The rollout will begin early next week. As mentioned, it will help users share the cost of bills, expenses, and payments. This feature is especially useful for those who share an apartment and need to split the monthly rent and other expenses with their mates. It could also come handy at a group dinner with many people.
With Split Payments, users can add the number of people the expense needs to be divided with and, by default, the amount entered will be divided in equal parts. A user can also modify each person’s contribution including their own. To use Split Payments, click the Get Started button in a group chat or the Payments Hub in Messenger. Users can modify the contribution in the Split Payments option and send a notification to all the users who need to make payments. After entering a personalised message and confirming your Facebook Pay details, the request will be sent and viewable in the group chat thread.
Once someone has made the payment, you can mark their transaction as ‘completed’. The Split Payment feature will automatically take into account your share as well and calculate the amount owed accordingly.
Tasneem Akolawala is a Senior Reporter for Gadgets 360. Her reporting expertise encompasses smartphones, wearables, apps, social media, and the overall tech industry. She reports out of Mumbai, and also writes about the ups and downs in the Indian telecom sector. Tasneem can be reached on Twitter at @MuteRiot, and leads, tips, and releases can be sent to email@example.com.