FB stock forecast 2022: Facebook’s latest earnings report analysis

Today I will interpret its just-announced financial report for the second quarter of 2021.

combined with the digital advertising industry's general development direction and competitive landscape.

First, let’s summarize Facebook’s latest earnings report.

I think Facebook’s second-quarter earnings report is very, very good. We can see how good it is from year-on-year and quarter-on-quarter. Revenue in the second quarter increased by 56% year-on-year, while it increased by 48% year-on-year in the first quarter. Operating profit in the second quarter increased by 107% year-on-year, while the first quarter increased by 93% year-on-year. 

Net profit increased by 101% in the second quarter, compared with a year-on-year growth of 94% in the first quarter. Earnings per share in the second quarter increased by 101% year-on-year, while the first quarter increased by 93% year-on-year. The operating margin in the second quarter was 43%, compared to 32% in the same period last year. The performance was far better than market expectations, with significant improvements both year-on-year and month-on-month.

I think it can be used to describe the dazzling financial report of Facebook. Of course, the significant year-on-year improvement in performance this time is also related to the worst period of the epidemic in the United States during the same period last year. The base figure last year was relatively low because many companies have cut their advertising expenditures in the face of the uncertainty of the epidemic.

In addition to Facebook’s beautiful financial data.

let’s analyze and discuss several other data in the financial report and give my opinion:

1) The number of daily active and monthly active users has maintained steady growth, about 7%. This shows that Facebook is still attractive to a new generation of young Internet users. The only fly in the ointment is that the daily and monthly active numbers of the United States and Canada have stopped growing for two consecutive quarters. 

In addition, the daily activity and monthly activity in Europe have experienced a month-on-month decline. This is also the reason why Facebook's stock price has fallen after the announcement of its financial report. This is how I understand it. Don’t forget, in the third and fourth quarters of 2020, the daily and monthly active numbers of the United States and Canada have declined.

At the time, everyone was worried about deleting Facebook accounts. The movement may have affected Facebook. At present, even in the saturated US and Canadian markets, the number of active users has basically stabilized in the developed markets of North America and Europe. In terms of growth, we cannot expect too much. The future growth of users mainly depends on developing regions such as Asia, Africa, and Latin America, and these regions have great growth potential.

2) Looking at ARPU again, it is the average revenue per user. The world average ARPU is US$10.12, a year-on-year increase of approximately 28%. The markets in the United States and Canada, Europe, and the Asia-Pacific region have all achieved steady and positive growth. Therefore, on the one hand, the number of Facebook users is growing relatively steadily. On the other hand, the revenue generated by each user has grown steadily. It is these two growths that have jointly promoted the rapid growth of Facebook's total revenue.

3) Looking at regional revenue, even in the relatively mature US and Canadian markets, its revenue still achieved year-on-year growth of 60%. This growth shows that the stamina is very sufficient. Generally speaking, the relatively mature North American market takes the lead in the digital advertising market. In the future, other digital advertising markets that are not very mature will take over. This ensures the sustainability of Facebook's revenue growth in the next few years.

Some people worry that Apple's privacy settings will affect Facebook's advertising, what should investors think?

This change is "one of the major advertising business resistance" that Facebook may face this year.

I personally think that investors’ worries are basically unfounded. From a technical point of view, Facebook has various ways to collect user information. Such as knowing your location through GPS, and understanding your social relationships through your friends. Through your sharing to understand your hobbies, through your dialogue information to understand your trends, and so on. Facebook knows that your information is the most, the most complete, and the most accurate in all applications.

In fact, I may know you better than Google. When you search on Google, you may not log in. The information on Facebook is basically real names. Even if Apple controls privacy, Facebook has tens of thousands of ways to make you clear and recommend the most suitable ads to you. And the longer you stay on the Facebook platform, the more accurate Facebook will understand you. Therefore, Facebook ads will become more and more accurate over time.

As an investor, there is really no need to make a fuss about Apple's privacy settings and the future Android privacy settings. I think this is Facebook's strategy. If the performance is not satisfactory in the future, you can give it to Apple. Also, Facebook has always had a tradition of scaring investors at financial report conferences. A few years ago, Facebook told investors that they would hire a large number of people to manually review content, which would cause operating costs to skyrocket. At that time, when many investors talked about Facebook, they were just talking about the surge in operating costs.

Looking at it now, this negative news has been completely forgotten. This time Facebook warned investors that it expected the future growth rate to fall sharply. Many investors are starting to worry again. I think this is nonsense. The growth rate of 56% this quarter is due to the low base last year. The future growth rate can't reach 56%. So, don’t worry too much. I think investors need to see the big trends and ignore these unimportant, partial, and small factors so that they can be confident about the future of Facebook.

Finally, talk about how to invest in Facebook, can you still buy it now?

　　

I am very optimistic about Facebook and believe that Facebook is worthy of long-term investment and the downside risk is relatively small. You can simply estimate its price-to-earnings ratio in this way, the current stock price divided by this quarter's earnings per share multiplied by 4, that is, 356 divided by 3.61 multiplied by 4 equals 24.65 times. For a company with a 56% year-on-year increase, the P/E ratio is 24.65 times, which is basically the lowest in FAANG.

For companies with this revenue and profit growth rate, this price-to-earnings ratio is within a reasonable or even underestimated range. Therefore, it is very safe to hold Facebook for a long time. From the beginning of the year to now, Facebook's stock price has risen by about 30%, especially before the performance is reported.

It is quite normal for the stock price to adjust after reporting the performance. As a long-term investor, you should completely ignore Facebook's short-term fluctuations. I am confident that Facebook's share price has good room to rise in the future. As an investor who has already invested in Facebook, the best strategy is to hold it or not. As an investor who intends to buy, if you think you can take it for more than two years, it doesn't really matter what price you enter.

Why am I more optimistic about Facebook?

I think we can analyze from the big industry development trend and growth space. I think the ceiling for Facebook's growth is very high, and it is far from reaching the ceiling.

1) The transformation of human beings to digital advertising is still continuing, and the digital advertising market is still growing. Facebook is basically a duopoly of digital advertising, and there are still opportunities for continued growth. In this financial report, Google, Snap, and Twitter performed well. It shows that digital advertising as a whole is a good business, a good industry, and a good track.

2) Facebook has no decent competitors in the international market. North America takes the lead, and other markets will gradually follow the North American market in the future. There is still a lot of room for international expansion. There are still many places in the world that restrict the use of Facebook due to slow networks and poor mobile phone performance. 

With the improvement of infrastructure in the future, the penetration rate of Facebook as a typical Internet application will definitely become higher and higher. There are a series of apps, some of which have not been monetized through advertising, so Facebook has a lot of room to monetize these platforms in the future.

3) Facebook is monetizing through other means, such as e-commerce, etc., it can cooperate with Shopify or directly open a store to enter e-commerce. There is still a lot of room for revenue growth outside of advertising in the future.

4) There are many opportunities for Facebook to do electronic wallets and so on. Facebook’s advantage in Fintech, if it is said that Facebook’s biggest risk, is antitrust. However, this is a commonplace question. 

At present, Facebook’s stock price, I believe, has taken into account the impact of antitrust, which is one of the reasons why Facebook’s long-term price-to-earnings ratio is relatively low. From the worst point of view, even if Facebook is split, the combined valuation of Facebook, Instagram, and WhatsApp may be higher than the current valuation of Facebook.

In short, antitrust is indeed Facebook’s omnipresent Damocles sword, but don’t worry too much. Even a substantial adjustment in Facebook's stock price caused by antitrust is often a good time to enter and increase positions. History has proved this many times.