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Stock Analyst Update

Facebook Posts Strong Q4 Revenue

With the better-than-expected fourth quarter results, we have adjusted our top- and bottom-line projections a bit higher.

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Facebook (FB) reported fourth quarter results ahead of our expectations and the S&P Capital IQ consensus. Strong user growth and interaction, which attracted more ad dollars, drove top-line growth in the quarter. The results did show a dip in operating margin compared with last year due to more investments in new products and innovation and higher legal costs. While Facebook’s network effect moat source is intact, the company does expect limitations on data utilization, which may impact top-line growth. For this reason, Facebook provided first-quarter revenue guidance below the consensus, but slightly above our projection. We continue to expect further deceleration in revenue growth due to a slowdown in user growth and monetization in the higher ad spending U.S. and Canada markets, and the negative impact of data restrictions on ad prices. With the better-than-expected fourth quarter results, we have adjusted our top- and bottom-line projections a bit higher, which after taking into account the time value of money, resulted in a 7.5% increase in our fair value estimate to $215. While this wide-moat name is down 7% in after-hours trading, we recommend waiting for additional pullback before investing.

Fourth-quarter ad revenue increased 25% from last year to $21.1 billion, as users continued to jump on the Facebook platform. The number of monthly active users (MAU) was up 8% year over year to nearly 2.5 billion while the daily active users (DAU) increased 9% to almost 1.7 billion. The latest features such as Stories on the Facebook app drove user growth during the quarter. Similar features on the Instagram app likely drove the 9.5% growth in family monthly active people (users that access any of the Facebook apps, including WhatsApp and Instagram, at least once a month) and 11% growth in family daily active people to 2.9 billion and 2.3 billion, respectively. The DAU/MAU ratio remained above 66%, continuing to indicate a high level of engagement on the platform.

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

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