- Facebook outperforms analyst expectations both in terms of revenue as well as earnings in Q3.
- Concerns around teen engagement worry investors.
- At a PE ratio of 102, FB stock is overvalued.
Facebook (NASDAQ:FB) came out with its Q3 2013 earnings release on October 30th after market hours. The company outperformed analyst expectations both on the top line as well as the bottom line. Despite good financial performance, concerns around teen engagement and news-feed ads seem to spite investor confidence. Let’s looks at the quarterly financial performance for Q3 2013.
Facebook Earnings Performance - 2013 Q3
|In millions of USD||Q3 2013||Q3 2012||Growth %|
|Net Income (Non GAAP)||621||311||100|
|Net Income Margin||31%||25%||25%|
The company reported revenues of $2.016 billion (60% growth YoY) and GAAP earnings per share (EPS) of 17 cents, ahead of analyst expectation of 13 cents (zacks.com). As revenue grew at a higher rate than expenses, margins improved with non-GAAP net income margin growing almost 100%.
The overall revenue growth (60% YoY) was fueled mostly by an impressive growth of 479% in revenue from mobile advertising. Daily active users (DAUs), monthly average users (MAUs), and mobile MAUs also saw robust YoY growth of 25%, 18% and 45% respectively. The company’s balance sheet improved due to repayments of $1.5 billion of long term debt.
Following the earnings release by Facebook, the share price climbed to $57 in after-hours trading from yesterday’s close of $49.01. However following the earnings conference call, the share price tumbled back to the level of $49.
To quote from the conference call,
“Our best synopsis on youth engagement in the U.S. reveals that usage of Facebook among U.S. teens overall was stable from Q2 to Q3. So we did see a decrease in daily users specifically among younger teens.”
“However as we think about the future, we do not expect to significantly increase ads as a percentage of news feed stories beyond where we were at the end of Q3. This is important because increasing ads in news feed has been a meaningful driver of our revenue growth in 2013, so this should be factored into your expectations for next year.”
The drop in price was mainly due to concerns which came up in the conference call. One of the concerning announcement was that the company does not plan to increase the number of news-feed ads. Newsfeed ads have been a main revenue driver for FB in recent times. Another troubling matter was the decrease in number of young teens using Facebook, which the management admitted to.
It is important to note that a price to earnings ratio of 102 (based on LTM adjusted earnings) still signifies high risk for investors. On the positive side, the company has seen a rapid growth in its earnings over the last four quarters. The last four quarters earnings have grown at a yearly rate of 133%. Given that FB won’t be increasing the number of news-feed ads, it would either have to increase the ad-rates or look for newer places to monetize its huge user base. See our Facebook stock analysis.
To see Facebook's current stock price, please click here: (NASDAQ:FB)