Facebook Posts Upbeat Q3 Earnings but Revenues Disappoint


Shares of Facebook (FB) rose 1.8% in the extended trading session on Monday after the social networking service company posted upbeat third-quarter earnings on the back of a 6% year-over-over rise in monthly active users (MAUs), which stood at 2.91 billion.

Earnings increased 19% year-over-year to $3.22 per share, surpassing the consensus estimate of $3.19 per share.

Meanwhile, revenues rose 35% year-over-year to $29.01 billion but missed the Street’s estimate of $29.58 billion on the back of slow growth witnessed due to Apple’s (AAPL) iOS 14 changes. The year-over-year growth in revenues was fueled by a 33% rise in advertising revenue.

Furthermore, Facebook’s average daily active users (DAUs) increased 6% year-over-year and stood at 1.93 billion. However, operating margin contracted to 36% from 37% last year. (See Facebook stock charts on TipRanks)

During the quarter, Facebook repurchased Class A common stock worth $14.37 billion, and had $7.97 billion remaining under the existing share repurchase authorization as of September 30, 2021. The company also announced a $50 billion increase in its share repurchase authorization.

Commenting on the results, the CEO of Facebook, Mark Zuckerberg, said, “We made good progress this quarter and our community continues to grow. I’m excited about our roadmap, especially around creators, commerce, and helping to build the metaverse.”

New Reporting Structure

Along with the earnings release, the company stated that starting with the fourth-quarter 2021 results, Facebook Reality Labs (FRL) will be reported as a separate segment.

Under the new reporting structure, Facebook will provide revenue and operating profit data for two segments: The first segment, Family of Apps, will include Facebook, Instagram, Messenger, WhatsApp and other services, and the second segment, Facebook Reality Labs, will include augmented and virtual reality-related hardware, software and content.

Notably, the company expects the investment in Facebook Reality Labs to reduce its overall operating profit for 2021 by $10 billion.

Guidance

For the fourth quarter of 2021, the company expects total revenue between $31.5 billion and $34 billion against the consensus estimate of $34.89 billion.

The CFO of Facebook, Dave Wehner, said, “Our outlook reflects the significant uncertainty we face in the fourth quarter in light of continued headwinds from Apple’s iOS 14 changes, and macroeconomic and COVID-related factors. In addition, we expect non-ads revenue to be down year-over-year in the fourth quarter as we lap the strong launch of Quest 2 during last year’s holiday shopping season.”

For full-year 2021, Facebook sees its total expenses in the range of $70 billion to $71 billion, as compared to the prior forecast of $70 billion to $73 billion. CapEx (capital expenditure) is estimated at around $19 billion, as compared to the previous estimate of $19 billion to 21 billion.

Analyst Recommendations

Recently, Morgan Stanley analyst Brian Nowak reiterated a Buy rating on the stock with a price target of $400 (upside potential of 21.7%). The analyst believes that the market is overly concerned about IDFA and macro trends, seeing 20%+ upside.

Nowak said, “While we expect some supply chain and macro-related disruption to FB’s ad business (they are too large to not see any impact) in our view, FB’s leading reach, ad ROI, placeholder as a top destination for ad dollars, and breadth of advertisers (10mn+) across goods/services/B2B should help them navigate through better than most (outside of GOOGL).”

Consensus among analysts is a Strong Buy based on 27 Buys, 5 Holds and 1 Sell. The average Facebook price target stands at $415.84 and implies upside potential of 26.1%. Shares of Facebook have gained 18.6% over the past year.

Website Traffic

TipRanks’ Website Traffic Tool, which uses data from SEMrush Holdings (SEMR), the world’s biggest website usage monitoring service, offers insight into Facebook’s performance this quarter.

According to the tool, the Facebook website recorded an 18.84% monthly decline, year-over-year, in global visits in September. Additionally, year-to-date website growth, compared to year-to-date website growth in the previous year, came in at a decline of 2.99%.

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