Facebook Shines, But Shares Overvalued

Overall revenue grew 52%, exceeding $5.4 billion, primarily driven by U.S. and Canada (up 58%) and Asia-Pacific (up 59%). Average revenue per user from ads continue to expand, up 37% versus the prior year period, due to growth in users, time spent, ad load, and higher ad pricing. Daily active users were up 16% while monthly active users, or MAUs, grew by 15%. Note while growth is down slightly sequentially, this growth in users is well ahead of Twitter (up 3% in MAUs) despite a much larger user base. We expect the growth in users to slow within the next two years, but the company can still increase both ad load and pricing to drive revenue growth.

Facebook also announced the board approved the proposal to create a Class C share of nonvoting stock. The new shares would be issued in a two to one ratio for every share of Class A and Class B stock. While the proposal will be voted on as part of the 2016 annual meeting in June, Mark Zuckerberg controls enough voting rights to pass the proposal. As outlined in the company’s proxy, this proposal was created to allow Zuckerberg to sell or donate his shares to his foundation without losing control of the company. While the board did get Zuckerberg to agree a deal that would minimize the chances of multigenerational control of the firm, the proposal basically installs Zuckerberg as the head of Facebook for as long he wants and to dictate the direction of the company while allowing him to sell off shares.

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.