Thursday, July 24, 2014

* Facebook (FB) - Earnings Postmortem: Did You Get All of This? Why FB is Now Larger than IBM

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FB is trading $75.88, up 6.4% with IV30™ down 33.4%. The Symbol Summary is included below.

Provided by Livevol

This is a follow up to the post yesterday:
FB - Earnings Preview: Lowest Risk Pricing Ever into Earnings... But it May Be Right... Or Not?

Conclusion (from yesterday's post)
The risk into FB earnings is at the lowest level it's been... ever.  The option market priced in a range of [$66, $76] through the end of Friday trading. As of right now that pricing seems pretty accurate, unless there is a run up in the next two days.

Let's get to the details of the earnings report, and why FB is now worth $195 billion and is trading at all-time highs... and where it goes next.

First, the stock chart (all-time).

Provided by Charles Schwab optionsXpress

OK, there we go, all-time high. FB is now larger than:

  • IBM (just barely)
  • PFE
  • T
  • BUD
  • ORCL
  • KO
  • INTC
  • MRK
  • AMZN
  • BAC
  • C
  • DIS
Here is raw data, then analysis at the end:

Earnings Postmortem (sources: AP, and ZACKS Equity Research)
Revenue: $2.91B up 61% y-o-y ($1.8B same quarter last year). Consensus was $2.8B.
Ad Revenue: $2.68B up 67%.
Mobile Revenue: $1.66B +151% y-o-y, accounted for 62% of total ad revenue (59.0% last quarter).
Desktop Revenue: +8.0% y-o-y

Earnings: $788 million ($0.30 EPS), up from $331 million ($0.13 EPS) y-o-y.
'Adjusted' Earnings: $0.42 EPS. Consensus was $0.33.

Users: 1.32B active users +14% y-o-y.
Mobile Users: 654 million log in daily from mobile devices, up 14% y-o-y.

Facebook has been growing its share of the worldwide digital advertising market, but it's still a long way from catching up to rival Google Inc. In 2013, Facebook had a nearly 6 percent share of the market compared with Google's 32 percent according to research firm eMarketer. This year, Facebook is expected to grow its slice to nearly 8 percent, while Google's should decline slightly, to just below 32 percent.

Source: AP via Yahoo! Finance Facebook 2Q earnings, revenue soar

Other news:
Zuckerberg took the opportunity to sketch out a particularly ambitious goal: stealing market share from just about every other form of digital media, particularly television.

Source: Forbes via Yahoo! Finance Attention, TV Networks: Facebook Is Coming For You Next, written by Jeff Bercovici .

FB beat on revenue, earnings and Zuckerberg is taking aim at all other forms of digital media. The power is with the growing user base, the growing mobile space and the fact that users spend an average of 40 minutes per day on the application.

Interestingly, Zuckerberg spun that a little sideways, not touting the remarkable 40 min number, but rather that Americans spend "about nine hours a day with screen of all kinds" so there is room for (big) growth. It is noted in the Forbes article that TV takes up 5 of those hours and that's where FB seems to be aiming down the line, but explicitly.

Evidence of the movement into video: "Facebook’s engineers recently tweaked the algorithm governing News Feed to increase the prominence of videos, Zuckerberg said" (also from Forbes).

The Wall St. Journal posted an article "Facebook’s Results, in Five Charts", written by Steven Russolillo.

I can't really post all five, that would theft, essentially, but here is my favorite and I list the other four, below:

Daily Active Users (DAUs) (by region of the world)

Provided by WSJ

Note that US & Canada are barely budging since IPO and certainly over the last five quarters.

Note that the FB reach is truly global and that US / Canada stagnation is easily compensated for from the other regions of the world.

Other Charts in that article:

  1. Monthly Active Users (MAUs) (by region of the world)
  2. Mobile DAUs
  3. Mobile MAUs
  4. Revenue

Here's a spoiler alert, "all the charts are going up."

Conclusion & Facts
FB is growing in every way you can compute growth.

Some growth rates are increasing slower because, and I say this honestly, they have reached almost every human being with a means to get onto the Internet.

FB still has its eyes wide open on growth and expansion and that means connecting more people to the Internet and grabbing shares of existing business lines.

FB also has its eyes wide open in plans to generate more revenue from the existing gigantic user base (see the 40 minutes per day commentary above as well as the videos on FB).

Competition now involves companies even larger than FB (see GOOGL).

FB is growing its digital worldwide advertising market which is at 6% compared to GOOG's 32%.

The company is ~the 20th largest in the world.

The P/E as of this writing is 98.40.

So, the company is "expensive" to this year's earnings, it is growing but that growth in some areas is necessarily slowing.  There is am 800-pound gorilla in FB's biggest area of potential growth, and that gorilla is Google.

The valuation, in my opinion, is priced to almost perfect execution moving forward, but so far, that's exactly what Zuckerberg has delivered.

This is trade analysis, not a recommendation.

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