Facebook – beats expectations, but growth to slow



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


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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.

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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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