Though Facebook's (FB) latest sales and earnings beat beat did benefit from some one-off events, it still goes a long way towards calming the fears that have swelled over the last few months. Its user stats and earnings call commentary aren't hurting either.
Facebook reported Q1 revenue of $11.97 billion (up 49% annually) and GAAP EPS of $1.69, topping consensus analyst estimates of $11.41 billion and $1.35. The company also announced it has added $9 billion to its stock buyback authorization; a $6 billion authorization launched in 2016 had been almost entirely used up, following the repurchase of $1.9 billion worth of shares in Q1.
Shares rose 7.3% in after-hours trading trading to $171.40. With concerns about the fallout from the Cambridge Analytica scandal weighing, Facebook went into earnings down 18% from an early-February peak of $195.32, hit shortly after the company posted a solid Q4 report.
Here are some key takeaways from Facebook's report and call:
- While the Cambridge scandal broke too late to have a major impact on Facebook's Q1 ad sales, there were concerns that news feed algorithm changes meant to encourage social interaction and lower passive consumption of brand/publisher content would take a toll, given Facebook's warnings that these changes could impact usage over the short-term. Such worries are looking overblown: Ad revenue rose 50% annually in dollars and 43% in constant currency (CC), after having grown 48% in dollars and 44% in CC in Q4.
- Notably, Facebook's ad impressions rose by 8% annually in spite of the news feed changes; that's better than the 4% growth registered in Q4. CFO Dave Wehner noted Instagram's ad growth is lifting impression growth, as is the fact that PC ad impression declines are now less of a factor. Facebook's average price per ad, benefiting from limited supply growth and the strong returns advertisers are seeing from Facebook campaigns with the help of the company's powerful targeting and measurement tools, rose 39% in Q1 after growing 43% in Q4.
- Monthly active users (MAUs) and daily active users (DAUs) both rose 13% annually in Q1, reaching levels of 2.2 billion and 1.45 billion. That was roughly in-line with expectations and better than some had feared following the Cambridge Analytica uproar. And after dropping by 1 million sequentially in Q4, North American DAUs rose by 1 million in Q1 to 185 million. That's encouraging, given that North America still accounts for 47% of Facebook's revenue and (as readers doubtlessly know) has provided Facebook with a lot of negative press in recent months.
- Earnings call comments from Wehner and COO Sheryl Sandberg suggest Facebook doesn't expect a massive impact on global usage or revenue from either Cambridge Analytica or the May arrival of new EU data-collection rules (GDPR). Wehner did caution, though, that Facebook expects European MAUs and DAUs to be flat to slightly down sequentially due to GDPR, and that there is "potential for some impact" to add sales as Facebook rolls out GDPR-type privacy controls globally. Both Wehner and Sandberg were eager to note that GDPR rules apply to the online ad industry in general, and that they're confident about how Facebook is competitively positioned as they arrive.
- As indicated earlier, Q1 sales got a healthy boost from currency swings. They also benefited from an accounting change related to Facebook's Instant Articles ad revenue that had a $130 million impact. EPS, meanwhile, benefited from stock buybacks and a lower-than-expected 11% tax rates. Facebook previously guided for a "mid-teens" 2018 tax rate, and reiterated the guidance on its call.
- Facebook once more hiked its spending guidance: It now expects GAAP costs and expenses to rise 50% to 60% in 2018, and for capital spending to total $15 billion (up sharply from 2017's $6.7 billion). Prior guidance was for 35% to 50% cost/expense growth and capex of $14 billion to $15 billion. Costs/expenses rose 39% annually in Q1, and capex more than doubled to $2.8 billion. Facebook is hardly alone among cloud giants in making huge capital investments.
- Though Instagram Stories has gotten more attention, CEO Mark Zuckerberg indicated WhatsApp Status is now "by far" the most popular Snapchat Stories clone. In November, Zuck disclosed both Instagram Stories and WhatsApp Status had topped 300 million DAUs. Ads are currently run against the former, but not the latter.
- Instagram, which has been pretty immune (brand-wise) from the Cambridge Analytica fallout, still appears to be doing very well. Wehner stated Instagram "continues to grow nicely" from both a business and an engagement perspective. Zuckerberg disclosed over 200 million people now use Instagram's Explore tab, and that over 100 million use the hashtag-following feature that launched in December. He added that Instagram Stories and the Instagram Direct messaging service are still "growing incredibly quickly."
- Zuckerberg and Sandberg both suggested Facebook's business model will remain very ad-centric, with other services -- for example, payments -- offered to businesses at cost with the goal of increasing the value proposition for Facebook's ads. Sandberg also noted that only 6 million of the 80 million businesses using Facebook on a monthly basis are currently advertisers. And that on Instagram, only 2 million of the 25 million businesses to have set up Instagram profiles currently advertise on the platform.
- Sandberg suggested Facebook is still taking a cautious approach to monetizing Messenger, which recently began showing some ads. But she once more sounded quite upbeat about its long-term revenue potential, and pointed out that over 18 million businesses now use the platform to connect with customers. Zuckerberg, meanwhile, disclosed over 3 million people are using the recently-launched WhatsApp Business app. Any aggressive effort to monetize Facebook's giant messaging platforms, each of which now have well over 1 billion MAUs, could have a big impact on sales growth in future years.
TheStreet's Eric Jhonsa previously covered Facebook's earnings report and call through a live blog.