Skip to Content
Stock Analyst Update

Facebook Posts Strong Quarter But Cautious About 2021

We are increasing our fair value estimate and view the wide-moat stock as fairly valued.


Facebook (FB) reported better-than-expected third-quarter results but provided a cautionary outlook for 2021. The firm is concerned that demand for direct response ads may weaken a bit during a recovery after an unexpected spike during the coronavirus pandemic. Additionally, Facebook management reiterated that changes to Apple’s identifier for advertisers could create headwinds. However, we believe management is being overly cautious, as an economic expansion will likely be accompanied by the startup of small businesses, which will mainly use direct response advertising. In our view, the pandemic and resulting e-commerce growth has increased the stickiness of Facebook, as smaller businesses have become more dependent on the platform for advertising and various tools (such as Facebook Shop and Business Suite) that the firm provides to help with digital transformation.

An economic recovery should also prompt a rebound in demand among brand advertisers. Finally, while Apple’s move may lower ad ROIs, we believe advertisers will have little choice but to use the platform given its large audience. We increased our 2020 and 2021 revenue projections, increasing our fair value estimate to $306 (from $285). We view this wide-moat stock as fairly valued.

Facebook posted total revenue of $21.5 billion, up 22% year over year driven by growth in users and user monetization. The firm’s monthly active user count increased in all markets, reaching more than 2.7 billion users globally, up 12% from 2019. With similar growth in daily active users, overall engagement on the platform remained at about 66%. More users and more time spent on the platform continue to attract advertisers, mainly small and medium-size businesses, or SMBs, which further improved Facebook’s user monetization as average monthly revenue per user increased 9% from 2019 to $7.89. With more users and higher engagement, ad supply increased 35% from last year, with only a limited impact on prices, which declined 9%.

Morningstar Premium Members gain exclusive access to our full analyst reports, including fair value estimates, bull and bear breakdowns, and risk analyses. Not a Premium Member? Get this and other reports immediately when you try Morningstar Premium free for 14 days.

Ali Mogharabi does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.

We’d like to share more about how we work and what drives our day-to-day business.

We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.

How we use your information depends on the product and service that you use and your relationship with us. We may use it to:

  • Verify your identity, personalize the content you receive, or create and administer your account.
  • Provide specific products and services to you, such as portfolio management or data aggregation.
  • Develop and improve features of our offerings.
  • Gear advertisements and other marketing efforts towards your interests.

To learn more about how we handle and protect your data, visit our privacy center.

Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.

To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.

Read our editorial policy to learn more about our process.