Facebook Q3 earnings remain strong amid concerns among investors

Mark Zuckerberg at a Facebook conference. Source: Buzznigeria

Facebook have published their Q3 earnings, beating analysts expectations.

On Wednesday 30th October, Facebook released their Q3 earnings with the highlights being:

- An increase in monthly active users, from 2.23 billion (Q2) to 2.27 billion (Q3).

- EPS (earnings per share) at $1.76 versus analysts expectations of EPS at $1.47.

- Facebook Q3 revenue amassing $17.73B versus analysts expectations of $17.78B.

Mark Zuckerberg had this to say about the Quarterly 3 results:

"Our community and business continue to grow quickly, and now more than 2 billion people use at least one of our services every day. We're building the best services for private messaging and stories, and there are huge opportunities ahead in video and commerce as well."

It is important to understand that Facebook have been trading a 1/3 lower than their high in July 2018 - just before the Cambridge Analytica scandal surfaced. Hence, it is obvious that Facebook's earnings highlight the future ahead for the company and whether investors decide to stay around or make a straight exit.

In addition, Facebook is rather large company, with a market capitalization of $438.8B with Instagram and WhatsApp under its leadership, those earnings reports are even more important to how the company decides to lead its various social media platforms in the future.

Recovery in Facebook Share price

Facebook publishes its Q3 earnings, suggesting upward growth as share price climbs after hours trading. Source: Bloomberg, FB:US

Looking at the chart, we can see that the Cambridge Analytica scandal did little to benefit Facebook's share price, hitting a 52 week low of less than 180 points. In addition, quarter 2 earnings did little to reinforce investors' confidence, with poor performance on the balance sheets showing less than expected EPS ratios and bullish overestimates by analysts.

With previous reports of dwindling growth and slimmer margins, Facebook's recent reports suggest heavy investments towards maintaining subscriber growth to combat this. Mark Zuckerberg has said that "more than 2 billion people use at least one of [our] Family of services every day on average" and adds to this by supporting more investment to AI to improve customer service, a commitment to provide more moderators on the platform and a greater drive to eliminate fake news. High hopes have been set that these services will help maintain these growth figures, allowing Facebook to be a platform of good use.

The future for Facebook

Zuckerberg's plan to capitalize on popular technology - photo and video streaming services.

Surprisingly enough, Mark Zuckerberg hasn't commented on data laws and privacy moving forward with Facebook. Perhaps a topic that has been brushed under the carpet, he instead intends to look to the "future" and focus less on the past. Instead, Zuckerberg has pitched plans to analysts to bring more advertisers to its platforms, focusing on its stories service; a 24hr photo and video streaming service (much like social media giants Snapchat).

It is important that Facebook implement this increase in stories service effectively, since the majority of its revenue comes from its advertisement's on the Facebook home page feed and on its Instagram feed.

How will people react to increasing advertisements to their stories feed; could that make them less inclined to use Facebook's service and substitute to Snapchat?

Zuckerberg plans to lure advertisers to a new technology such as stories feeds. Can Facebook manage to implement this without compromising its largest revenue gainer which are it's home page feeds?

References used:

Kuchler, H (2018). Facebook moves past controversies to focus on its growth story. https://www.ft.com/content/c816f9b4-dca1-11e8-9f04-38d397e6661c. FT [online], (accessed 31/10/2018)

Kuchler, H (2018). Facebook misses on revenues but earnings top forecasts. https://www.ft.com/content/b2b8f8c0-dc69-11e8-8f50-cbae5495d92b FT [online], (accessed 31/10/2018)

Castillo, M (2018). Facebook shares whipsaw after mixed earnings report. https://www.cnbc.com/2018/10/30/facebook-q3-2018-earnings.html [online], (accessed 31/10/2018)

Facebook Reports Third Quarter 2018 Results (2018) [Online] https://s21.q4cdn.com/399680738/files/doc_financials/2018/Q3/Q3-2018-Earnings-Press-Release.pdf (accessed 31/10/2018)