Facebook (Nasdaq: FB) followed many of its mega-cap tech peers by delivering a strong earnings report that exceeded estimates by many measures. Shares were mostly unchanged in after-hours trading on the company's comments that its advertising business may be negatively affected by changes in Apple's (Nasdaq: AAPL) new OS.
The company hit several new records in terms of total users across all its platforms. Overall, the pandemic led to an increase in revenues for Facebook as more people were online which meant more opportunities to deliver ads. In light of recent events, the company is looking to reduce the amount of political content that users can see on their News Feed.
Inside the Numbers
In Q4, Facebook generated $3.88 in earnings per share which topped expectations of $3.22 by a healthy margin. Revenue came in at $28.1 billion versus $26.4 billion. Daily active users came in at 1.84 billion which was in-line with forecasts of 1.83 billion. The average revenue per user was $10.14 for the quarter which was also higher than the forecast of $9.49.
The company attributed some of its strength in the quarter due to increased ecommerce spending as many vendors use Facebook for marketing. The company warned that if these trends reverse then it could harm Facebook's business. However, this could be offset if local and small business advertising starts improving. Another risk is that Apple's privacy changes could impact Facebook's ability to target ads.
Of course, this has created some acrimony between the two companies. CEO Mark Zuckerberg said that Apple is now "one of its biggest competitors."
In total, the company has 3.3 billion monthly users across all its apps, a slight increase from 3.21 billion in the previous quarter. One bright spot was "Other" revenue which was $885 million, a 156% increase from 2020's Q1. This is primarily due to strong sales of the Oculus and Facebook Portal. Both products benefitted from the pandemic.
Stock Price Impact
The company announced a repurchase of up to an additional $25 billion of Facebook stock. In total, Facebook is set to buy 3% of its float over the next 18 months. This should also contribute to EPS growth.
At one point, Facebook was one of the strongest stocks in the market. It managed to make new all-time highs just two months after the March stock market bottom. However, since the summer, the stock has been primarily range-bound, trading between $240 and $300.
Yet, over this time, Facebook has continued to deliver three straight quarters of growth. The stock is becoming increasingly attractive from a valuation perspective with a forward price to earnings ratio of 25. Investors should consider getting long the stock at the bottom end of this range.