Facebook Q3 pre-earnings call: what you need to know

By Duncan Ferris

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Facebook will release its third quarter earnings on 25 October following a stormy few weeks

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Facebook will release its third quarter earnings on 25 October following a stormy few weeks. The social media giant’s second quarter earnings beat analyst expectations, but the company appears set to report a less sparkling set of figures early next week.

Facebook has faced continued scrutiny on issues such as privacy and mental health over the period. The company’s shares notably took a hit after a whistleblower came forward in early October to accuse the company of prioritising “growth over safety”.

Share price overview

Facebook shares have risen in price by 18.9% across the year to date, coming in at $324.76. Additionally, the share price has climbed by 154.0% over the last five years.

Readings from Koyfin show that the share price target has averaged at $416.22 over the last 12 months. Most brokers have Facebook shares as a Buy or Strong Buy reccomendation.

As of 18 October, Facebooks financial metrics looked like this:

  • Share Price: $324.76

  • Market Cap: $915.6bn

  • Trailing 12-month (TTM) Revenue: $104.8bn

  • TTM Cash and Short Term Investments: $64.1bn

  • Total Assets: $170.6bn

  • Debt: $12.6bn

  • Total Equity: $138.2bn

  • TTM EPS: 13.5

  • TTM P/E Ratio: 24.1

Predictions

Analysts expect Facebook to report third quarter revenue of $29.5bn, or growth of 1.3% against the second quarter. However, EPS is slated to come in at $3.15 for the three month period, a 12.6% decline. Compared to the same period in 2020, these figures represent 37.4% and 16.2% growth respectively.

The general analyst consensus appears to be one of optimism regarding Facebook’s long-term prospects. However, there is concern that the social media company could be impacted by sustained negative news stories. A notable recent example of these stories were the comments from whistleblower Frances Haugen, which sent the company’s stock down by nearly 5%.

In the company’s second quarter earnings release, CFO, David Wehner, said he expected year-over-year total revenue growth rates to “decelerate significantly on a sequential basis as we lap periods of increasingly strong growth”. He also highlighted an expectation for increased ad targeting headwinds due to regulatory and platform changes. These changes, which include recent iOS updates, are expected to have a greater impact in the third quarter.

As such, it looks like the third quarter might yield some underwhelming results for the social media giant.

Shareholder risks

An ever-present risk for Facebook is the possibility of tighter regulations. The company has faced its fair share of of warnings. For example, the Cambridge Analytica scandal of 2018 saw CEO and founder Mark Zuckerberg testifying before a congressional hearing on data privacy.

When Facebook reported in July of that year that growth in the number of Facebook users had slowed following the scandal, its shares dropped by 19%. This knocked $119bn off the social media giant’s market value in a single day.

Additional risks come in the form of competition. Facebook may have smartly snapped up competitors like Instagram and WhatsApp, but that has not cleared the way. While Facebook may still be the biggest fish in the pond, TikTok, Snapchat and Reddit are all growing at far faster rates.

The final risk is the limited scope for future growth. Facebook recorded 2.89 billion monthly users in the second quarter of 2021. This is more than a third of the planet’s population. Worryingly for Facebook, growth in the number of people adopting social media appears to be in decline. According to Statista, 2018 saw an extra 280 million people start to use social media. However, this number had dropped to 200 million by 2020 and further deceleration is predicted over the next five years.

Is Facebook a good investment?

There is no questioning the fact that Facebook has provided its long-term shareholders with impressive growth. However, there are reasons for new investors to be cautious. The threat of regulation looms large for the social media giant and previous run-ins with the US government have led to major decreases in share price.

Even so, Facebook is home to significant innovation which could create new avenues for revenue. In October, the company announced it will hire 10,000 new staff in the European Union to develop a metaverse. This metaverse, which is effectively an online world through which users can interact with each other using virtual reality headsets, is not expected to be completed for at least 10 years. This demonstrates Facebook’s forward-thinking nature and willingness to create.

Coupled with its strong growth, these qualities make it an exciting proposition for investment.

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In this article:

Topics:
Quarterly Earnings
Industries:
Information Technology
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.