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Facebook Inc A FB

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Facebook Posts Another Strong Quarter but Cautious About 2021; Raising FVE to $306; Fairly Valued

Ali Mogharabi Senior Equity Analyst

Analyst Note

| Ali Mogharabi |

Facebook 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.

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Company Profile

Business Description

Facebook is the world’s largest online social network, with 2.5 billion monthly active users. Users engage with each other in different ways, exchanging messages and sharing news events, photos, and videos. On the video side, the firm is in the process of building a library of premium content and monetizing it via ads or subscription revenue. Facebook refers to this as Facebook Watch. The firm’s ecosystem consists mainly of the Facebook app, Instagram, Messenger, WhatsApp, and many features surrounding these products. Users can access Facebook on mobile devices and desktops. Advertising revenue represents more than 90% of the firm’s total revenue, with 50% coming from the U.S. and Canada and 25% from Europe. With gross margins above 80%, Facebook operates at a 30%-plus margin.

1601 Willow Road
Menlo Park, CA, 94025
T +1 650 543-4800
Sector Communication Services
Industry Internet Content & Information
Most Recent Earnings Jun 30, 2020
Fiscal Year End Dec 31, 2020
Stock Type Aggressive Growth
Employees 56,653