Facebook's (FB) Q3 Earnings Beat Estimates, Revenues Up Y/Y

Zacks Equity Research
·5-min read

Facebook’s FB third-quarter 2020 earnings of $2.71 per share beat the Zacks Consensus Estimate by 39.7% and increased 27.8% year over year.

Revenues of $21.47 billion surpassed the Zacks Consensus Estimate by 7.9% and also rose 21.6% year over year. At constant currency (cc), the top line improved 21%.

Geographically, Asia-Pacific, Europe, the United States & Canada, and Rest of World (RoW) revenues grew 29.5%, 23.8%, 19.4% and 12.7%, on a year-over-year basis, respectively.

Average Revenue per User (ARPU) in Europe, the United States & Canada and Asia-Pacific grew 16.2%, 14.7% and 13.3%, on a year-over-year basis, respectively.

Facebook, Inc. Price, Consensus and EPS Surprise

 

Facebook, Inc. Price, Consensus and EPS Surprise
Facebook, Inc. Price, Consensus and EPS Surprise

Facebook, Inc. price-consensus-eps-surprise-chart | Facebook, Inc. Quote

Advertising Revenue Growth Strong

Facebook’s third-quarter advertising revenues were better than anticipated, and grew handsomely when compared to its closest peers – Alphabet’s GOOGL Google and Twitter TWTR. Facebook’s ad revenues increased 22.1% year over year (21% at cc) to $21.22 billion.

Notably, Google, Facebook’s primary competitor for ad dollars, announced third-quarter ad revenues of $37.10 billion, up 9.8% year over year. Further, Twitter’s third-quarter advertising revenues increased 15% to $808 million.

Meanwhile, Facebook’s Asia-Pacific, Europe, the United States & Canada and ROW advertising revenues grew 29.6%, 24.5%, 20.1% and 12.1%, on a year-over-year basis, respectively.

Ad impressions served rose 35%, driven by Facebook and Instagram. However, average price per ad decreased 9% from the year-ago quarter.

User Base Continues to Expand

Monthly active users (MAUs) were 2.740 billion, up 11.9% year over year. Daily Active Users (DAUs) were 1.820 billion, which increased 12.1% year over year and represented 66% of MAUs.

Family Daily Active People (DAP), defined as a registered and logged-in user who visited at least one of the Family products (Facebook, Instagram, Messenger and/or WhatsApp) on a given day, were 2.54 billion, up 15.5% year over year.

Family Monthly Active People (MAP) increased 13.8% year over year to 3.21 billion.

Asia-Pacific DAUs were up 15.9% year over year to 727 million. DAUs in the RoW, Europe and the United States & Canada grew 14.3%, 5.9% and 3.7% to 593 million, 305 million and 196 million, respectively.

MAUs in Asia-Pacific, RoW, Europe and the United States & Canada grew 15.1%, 13%, 6.7% and 3.2% to 1.17 billion, 906 million, 413 million and 255 million, respectively.

Quarter Details

Other revenues declined 7.4% year over year to $249 million.

In the third quarter, total costs and expenses climbed 28.3% year over year to $13.43 billion. Moreover, as percentage of revenues, total costs and expenses were 62.6%, up 330 basis points (bps) year over year.

As percentage of revenues, research & development (R&D), and general & administrative expenses (G&A) increased 210 bps and 70 bps, on a year-over-year basis, respectively.

R&D expenses increased due to spending innovation efforts, notably Facebook Reality Labs, as well as core product. G&A expenses increased due to higher legal expenses.

However, as percentage of revenues, marketing & sales expenses decreased 120 bps year over year.

Notably, Facebook’s employee base was 56,653 at the end of the third quarter, up 32% year over year.

Operating income of $8.04 billion increased 11.9% year over year. However, operating margin contracted 330 bps year over year to 37.4%.

Balance Sheet & Cash Flow

As of Sep 30, 2020, cash & cash equivalents and marketable securities were $55.62 billion compared with $58.24 billion as of Jun 30, 2020.

Capital expenditures increased 5.5% year over year to $3.88 billion. Free cash flow climbed 5.7% year over year to $5.95 billion in the reported quarter.

Facebook bought back shares worth almost $1.7 billion in the reported quarter.

Guidance

Facebook expects DAUs and MAUs to be flat or slightly down in the United States and Canada in the fourth quarter of 2020, sequentially.

This Zacks Rank #3 (Hold) company expects ad-revenue growth on a year-over-year basis to be more than the third quarter’s growth rate, driven by continued strong advertiser demand during the holiday season. Strong demand for Oculus 2 is expected to boost other revenues. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Moreover, changes made by Apple AAPL and Google in their mobile operating systems and browser platforms have limited Facebook’s ability to track user-activity trend.

Additionally, Facebook expects total expenses for the current year between $53 billion and $54 billion, narrowed down from the prior range of $52-$55 billion.

Moreover, in the ongoing year, Facebook expects capital expenditures to be $16 billion.

For 2021, Facebook expects total expenses between $68 billion and $73 billion. Moreover, capital expenditures are expected to bein the $21-23 billion range.

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