Facebook's Results Beat Expectations

With impressive user growth, engagement at high levels, and improving user monetization, Facebook (FB) yet again demonstrated why we rate it as a wide-moat company. While the firm remains under scrutiny and faces regulatory risks, it continues to execute exceptionally well, with third-quarter top and bottom lines coming in above the S&P Capital IQ consensus estimates. Management guided for higher deceleration in top-line growth during the fourth quarter, which was in line with our estimate. We are not making significant adjustments to our model and are maintaining our fair value estimate of $200. The stock is trading higher in after-hours and approaching our fair value estimate. We recommend waiting for a wider margin of safety before investing in this wide-moat and high uncertainty name.

Total revenue of $17.7 billion was up 29% year over year as higher growth in users accommodated continuing increases in user monetization. Total monthly active users, or MAUs, increased 8% from last year to 2.45 billion, while average revenue per user, or ARPU, went up 20% to $7.26. Higher user monetization was driven by a 37% increase in ads sold, which were only partially offset by a 6% decline in average ad prices. Some volume discounts and the lower priced Stories ads (on Facebook and Instagram) drove the decline in prices. Year-over-year MAU growth accelerated in all regions from the prior quarter, with regions outside of North America and Europe leading the way. The 9% growth in daily average users, or DAUs, was also impressive and indicated continuing strength in Facebook’s user engagement as it outpaced MAU growth. The platform’s user engagement or the DAU/MAU ratio was slightly above 66% during the quarter.