Facebook, Inc. :FB-US: Earnings Analysis: Q3, 2017 By the Numbers : November 8, 2017

Facebook, Inc. reports financial results for the quarter ended September 30, 2017.

We analyze the earnings along side the following peers of Facebook, Inc. – Alphabet Inc. Class A, Twitter, Inc. and Microsoft Corporation (GOOGL-US, TWTR-US and MSFT-US) that have also reported for this period.

Highlights

  • Summary numbers: Revenues of USD 10328 million, Net Earnings of USD 4704 million.
  • Gross margins widened from 85.92% to 85.98% compared to the same period last year, operating (EBITDA) margins now 57.07% from 53.24%.
  • Year-on-year change in operating cash flow of 71.29% is about the same as the change in earnings, likely no significant movement in accruals or reserves.
  • Earnings growth from operating margin improvements as well as one-time items.

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income growth:

2017-09-30 2017-06-30 2017-03-31 2016-12-31 2016-09-30
Relevant Numbers (Quarterly)
Revenues (mil) 10328 9321 8032 8809 7011
Revenue Growth (%YOY) 47.31 44.83 49.24 50.81 55.77
Earnings (mil) 4704 3890 3059 3561 2373
Earnings Growth (%YOY) 98.23 89.94 103.26 129 166.33
Net Margin (%) 45.55 41.73 38.09 40.42 33.85
EPS 1.59 1.32 1.04 1.21 0.82
Return on Equity (%) 6.83 6.05 5.04 6.29 4.54
Return on Assets (%) 24.62 21.83 18.31 22.86 16.45

Access our Ratings and Scores for Facebook, Inc.

Market Share Versus Profits

Revenues History
Earnings History

FB-US’s change in revenue this period compared to the same period last year of 47.31% is almost the same as its change in earnings, and is about average among the announced results thus far in its peer group, suggesting that FB-US is holding onto its market share. Also, for comparison purposes, revenues changed by 10.80% and earnings by 20.93% compared to the immediate last period.

Revenues Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Leader, Earnings Focus, Laggard, Revenues Focus

Earnings Growth Analysis

The company’s earnings growth was influenced by year-on-year improvement in gross margins from 85.92% to 85.98% as well as better cost controls. As a result, operating margins (EBITDA margins) rose from 53.24% to 57.07% compared to the same period last year. For comparison, gross margins were 86.73% and EBITDA margins were 55.26% in the last reporting period.

Gross Margin Versus EBITDA Margin

Quadrant label definitions. Hover to know more

Differentiated; Low Cost, Commodity; Low Cost, Commodity; High Cost, Differentiated; High Cost

Gross Margin Trend

Companies sometimes sacrifice improvements in revenues and margins in order to extend friendlier terms to customers and vendors. Capital Cube probes for such activity by comparing the changes in gross margins with any changes in working capital. If the gross margins improved without a worsening of working capital, it is possible that the company’s performance is a result of truly delivering in the marketplace and not simply an accounting prop-up using the balance sheet.

Gross Margin History
Working Capital Days History

FB-US’s gross margin improvement has not produced any big difference in its working capital. Working capital days are currently 345.33, compared to last year’s level of 340.92 days. This leads Capital Cube to conclude that the improvements in gross margins are likely from operating decisions and not trade-offs with the balance sheet.

Gross Margin Versus Working Capital Days

Quadrant label definitions. Hover to know more

Customer Financed, Cash Starved, Supplier Financed, Cash Rich

Cash Versus Earnings – Sustainable Performance?

It is important to examine a company�s cash versus earnings numbers to gauge whether its performance is sustainable.

FB-US’s change in operating cash flow of 71.29% compared to the same period last year is about the same as its change in earnings this period. Additionally, this change in operating cash flow is about average among its peer group. This suggests that the company did not use accruals or reserves to manage earnings this period, and that, all else being equal, the earnings number is sustainable.

Operating Cash Flow Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Cash Flow based Earnings, Likely Non-cash Earnings, Low Cash Flow Base, Likely Undeclared Earnings

Margins

The company’s earnings growth has also been influenced by the following factors: (1) Improvements in operating (EBIT) margins from 44.82% to 49.59% and (2) one-time items. The company’s pretax margins are now 50.70% compared to 45.20% for the same period last year.

EBIT Margin Versus PreTax Margin

Quadrant label definitions. Hover to know more

Operation driven Earnings, One-time Favorables, Low Earnings Base, One-time Unfavorables
EBIT Margin History
PreTax Margin History

Access our Ratings and Scores for Facebook, Inc.

Company Profile

Facebook, Inc. engages in the development of social media applications for people to connect through mobile devices, personal computers, and other surfaces. It enables users to share opinions, ideas, photos, videos, and other activities online. Its products include Facebook, Instagram, Messenger, WhatsApp, and Oculus. The company was founded by Mark Elliot Zuckerberg, Dustin Moskovitz, Chris R. Hughes, Andrew McCollum and Eduardo P. Saverin on February 4, 2004 and is headquartered in Menlo Park, CA.

CapitalCube does not own any shares in the stocks mentioned and focuses solely on providing unique fundamental research and analysis on approximately 50,000 stocks and ETFs globally. Try any of our analysis, screener or portfolio premium services free for 7 days. To get a quick preview of our services, check out our free quick summary analysis of FB-US.

Disclaimer

The information presented in this report has been obtained from sources deemed to be reliable, but AnalytixInsight does not make any representation about the accuracy, completeness, or timeliness of this information. This report was produced by AnalytixInsight for informational purposes only and nothing contained herein should be construed as an offer to buy or sell or as a solicitation of an offer to buy or sell any security or derivative instrument. This report is current only as of the date that it was published and the opinions, estimates, ratings and other information may change without notice or publication. Past performance is no guarantee of future results. Prior to making an investment or other financial decision, please consult with your financial, legal and tax advisors. AnalytixInsight shall not be liable for any party’s use of this report. AnalytixInsight is not a broker-dealer and does not buy, sell, maintain a position, or make a market in any security referred to herein. One of the principal tenets for us at AnalytixInsight is that the best person to handle your finances is you. By your use of our services or by reading any of our reports, you’re agreeing that you bear responsibility for your own investment research and investment decisions. You also agree that AnalytixInsight, its directors, its employees, and its agents will not be liable for any investment decision made or action taken by you and others based on news, information, opinion, or any other material generated by us and/or published through our services. For a complete copy of our disclaimer, please visit our website www.analytixinsight.com.