Abybye: December 2019

Saturday, December 21, 2019

Payments and other fees

Revenue from payments is derived from the net fee Facebook receives from developers using its payments infrastructure. The other fees are comprised of revenue from the delivery of consumer hardware devices and various other sources.7

Facebook posted $825 million in revenue from payments and other fees in 2018, representing the remaining 1.5% of total revenue for the year. Revenue for the segment grew by 16% in 2018, a significant improvement from a 6% decline in 2017.8 Through the first three quarters of 2019,Big Boss vote Big Boss vote Myna nandhini

Facebook generates substantially

Facebook generates substantially all of its revenue from selling advertising to marketers. Ads are displayed on Facebook's main social-networking site, as well as Instagram, Messenger, and other third-party affiliated websites or mobile applications. Marketers pay for ads based on the number of impressions delivered or number of actions, such as clicks, undertaken by users. 7

Facebook posted $55 billion in advertising revenue in 2018, comprising 98.5% of the company's total revenue. Ad revenue grew by 38% throughout 2018 compared to 49% throughout 2017.8

How Facebook Makes Money

Facebook Inc. (FB) primarily makes money by selling advertising space on its various social-media platforms. Those platforms include websites and mobile applications that allow users the ability to connect and communicate with family and friends. The company's sites and apps include social networking site Facebook, photo- and video-sharing app Instagram, and messaging apps Messenger and WhatsApp. Facebook also provides an ecosystem that allows users to connect through its Oculus virtual reality products.1

Facebook competes with other companies that sell advertising to marketers, as well as companies that provide platforms for communicating and sharing content among users’ various social networks. Major competitors include Apple Inc. (AAPL), Alphabet Inc.’s (GOOGL) Google and YouTube, Tencent Music Entertainment Group (TME), and Amazon.com (AMZN).1

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Perhaps more important is the amount of revenue

Perhaps more important is the amount of revenue Facebook generates from each of its active users, a figure encapsulated by the ARPU metric. Between Q3 2017 and Q3 2018, Facebook increased its ARPU by 20.1%, and judging by the most recently released quarter, is on pace to repeat a similar level of growth. Increasing the ARPU over time is a sign that Facebook’s targeted ads are becoming increasingly efficient, and some think the company still has a lot more efficiency gains to be made. That’s helping drive the stock despite slowdowns in some of the other financial metrics.

The projection for negative

The projection for negative annual earnings growth for 2019 reflects the negative YOY EPS growth in the first two quarters of the year, which are at least partly due to higher expenses from increased investment in security measures. Second quarter EPS of $0.91 also reflected a one-time charge of $2 billion related to Facebook’s settlement with the Federal Trade Commission (FTC) and $1.1 billion in income tax expense. Without those expenses, Q2 EPS would have been $1.99, a 6.13% positive surprise above analyst estimates. Revenue is still growing but has trended downwards over the past several quarters to its slowest pace since the company went public.

Analysts expect Facebook to report earnings

Analysts expect Facebook to report earnings of $1.90 per share, implying year-over-year (YOY) growth of 8.1%. The earnings growth will be driven by estimated Q3 revenue of $17.3 billion, 26.3% higher than the year ago period. For the entire 2019 fiscal year, Facebook is on track to post earnings per share (EPS) of $6.26 on revenue of $70.2 billion, according to analyst estimates. That would mean an annual EPS decline of 19.07%, the first year of negative EPS growth since 2012, the year of Facebook’s initial public offering (IPO).

Despite all the controversy

Despite all the controversy, Facebook has seen its shares rise nearly 29.6% in the past year, more than double the pace of the broader market. Over its 15-year existence the company has grown its user base to about a quarter of the world’s population and has become the second most popular place to advertise online. The combination of active users and advertising revenue has helped push the company to a market capitalization of $531 billion, and investors will be looking to see if that value will rise even higher as Facebook reports earnings on October 30, 2019 for Q3 2019.