Facebook (FB  ) finished 7% higher following stronger than expected Q1 earnings. The company beat on the top and bottom-line with its results driven by an increase in ad prices and the number of ads shown. The results also reflect that businesses are increasing their spending on online advertising.

Inside the Numbers

In Q1, Facebook reported $3.30 in earnings per share which beat expectations of $2.37 per share. Revenue came in above expectations as well at $26.2 billion vs $23.7 billion. This is a 48% increase from Q1 last year. While, EPS increased by 94%.

The company fell short slightly on user growth with 1.89 billion daily active users and 2.85 billion monthly active users. Both figures were off by 10 million. And, it's an indication that the company may have reached a saturation point in terms of growth. However, this puts more importance on average revenue per user which reached $9.27 topping expectations of $8.40.

Overall, the price per ad increased by 30%, while it was able to deliver 12% more ads. The company expects moderate growth in Q2, although it didn't give any firm guidance. Last year's Q2 was soft due to companies pulling back on spending amid the pandemic.

The company is going to deal with a significant challenge as Apple's new OS will compromise its ability to target ads. But, it is going to start increasing its focus on ecommerce features for its customers. The company envisions businesses on the platform selling directly to customers on the app. Thus, the company is building its own payment technology, digital currency, and digital wallet.

Stock Price Outlook

Facebook's stock had encountered some headwinds when the news came about increased privacy protections in Apple's iOS14. However, it could be a long-term boon for Facebook, as it looks ready to focus on providing higher-margin, e-commerce services to the businesses on its platform.

Currently, companies connect with customers on Facebook and then they are directed to their website or app to make sales. In theory, Facebook could provide this service which would lead to increased conversion and allow Facebook to take a cut of each transaction.

This also makes the stock more attractive as it could fuel the companies' next phase of growth and lead to increased revenue per user by a significant degree. Facebook is also a beneficiary of the current, high-growth environment as business spending on online advertising should remain strong.