Facebook Q3 Post-earnings Analysis: What You Need to Know

By Duncan Ferris

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Facebook (NASDAQ: FB) shrugged off whistleblower developments even as it posted mixed third-quarter earnings.

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The company’s share price increased by around 2% in extended trading, despite the fact it had revealed that revenues had missed the mark during the three-month period.

However, earnings were on target and Facebook announced expanded share buyback plans. The social media giant also made confident assertions about its ambitious vision for the future.

The numbers

Revenue fell slightly short of expectations, coming in at $29.01bn instead of the projected $29.57bn. Even so, this amounts to a 35% increase on the same period last year. On the other hand, earnings per share (EPS) beat analysts’ expectations by coming in at $3.22, above the forecasted level of $3.15. This was also an increase of 19% compared to the third quarter period of 2020.

The social media giant was also on target with its daily active users, with these landing precisely on target at 1.93 billion people, up by 6%. Monthly active users missed the mark though, rising by 6% but falling just short of analyst projections of 2.93 billion.

The company also announced a $50bn increase in its share repurchase authorization. The three-month period had already seen the company snap up $14.37bn of its Class A common stock. This left it with $7.97bn remaining on its prior share repurchase authorization.

Bad press

As Facebook was releasing its earnings, former employee Frances Haugen was calling for further regulation of the social media giant. The whistleblower has been a thorn in the company’s side this quarter. She has released internal documents to the Wall Street Journal and spoken out publicly against her former employer.

Some of the more explosive documents leaked by Haugen included an internal and unreleased report which indicated that the company’s apps were damaging the mental health of young people.

Facebook did seek to address some of this criticism. During the earnings call, founder and CEO Mark Zuckerberg said: “Good faith criticism helps us get better. But my view is that what we are seeing is a coordinated effort to selectively use leaked documents to paint a false picture of our company.”

He added that social media was not “the main driver” behind mental health issues in teenagers. He conceded that it also could not be the solution.

Since the period, Facebook’s services were victim to one of their worst ever outages. Reports said billions of users were unable to access Facebook, WhatsApp and Instagram. This was further bad press for the company in an already difficult period.

Looking ahead

Facebook said it expected fourth-quarter revenue to be between $31.5bn and $34bn, adding that it faced significant uncertainty during the period due to continued headwinds from Apple’s iOS 14 changes, as well as macroeconomic and COVID-19 related factors. Non-ads revenue is expected to drop in the year’s final quarter due to the strong showing of Quest 2 in the 2020 festive season.

In the short term, the company said it wanted to grow the engagement of Facebook and Instagram users between the ages of 18 and 29. To this end, Facebook is developing its Reels feature, which allows users to record or view short video clips. This would see the company competing directly with TikTok and YouTube.

Additionally, the quarter will see Facebook breaking off Facebook Reality Labs as a separate reporting segment. This segment will cover the company’s efforts with augmented and virtual reality hardware, software and content. It covers the much-publicised development of a metaverse, an online virtual environment for working, gaming and socialising.

The company added that its investment in Facebook Reality Labs was expected to reduce overall operating profit in 2021 by approximately $10bn. It explained that this segment of the business was key to the company’s long-term vision and it expected to increase investment over the coming years. Just last week Facebook announced its intention to hire 10,000 new Reality Labs employees in the European Union.

Is Facebook a good investment?

The strength of Facebook’s share price, in spite of what has been a difficult period when it comes to PR, is impressive. The social media giant seems to have rapidly shaken off potentially damaging assertions and accusations from whistleblower Frances Haugen, at least for now. The company could still face repercussions in the form of regulatory consequences.

Facebook’s ambition is also impressive. The company is embracing the idea of the metaverse like no other and thus is positioning itself to be one step ahead of the competition for what could be the next monumental change in how we exchange information and communicate with each other.

However, the social media giant needs to keep up appearances with the live forms of its social media sites. Among the documents leaked by Haugen was internal data showing that the number of teenage users of the Facebook app in the US has declined by 13% since 2019, with a projected drop of 45% over the next two years. The company is right to focus on attracting younger users, as its own data shows that younger generations could be leaving its platforms behind.

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Topics:
Quarterly Earnings
Interactive Media and Services
Industries:
Communication Services
Companies:
Facebook

Author: Duncan Ferris

This article does not provide any financial advice and is not a recommendation to deal in any securities or product. Investments may fall in value and an investor may lose some or all of their investment. Past performance is not an indicator of future performance.

Duncan Ferris does not hold any position in the stock(s) and/or financial instrument(s) mentioned in the above article.

Duncan Ferris has not been paid to produce this piece by the company or companies mentioned above.

Digitonic Ltd, the owner of ValueTheMarkets.com, does not hold a position or positions in the stock(s) and/or financial instrument(s) mentioned in the above article.

Digitonic Ltd, the owner of ValueTheMarkets.com, has not been paid for the production of this piece by the company or companies mentioned above.