Facebook Share Price: Q1 Results Analysis + FAAMG Valuation Comps

Facebook Q1 Results Analysis

Social media giant Facebook (ticker: FB) beat analyst expectations when it released its first quarter results on Wednesday, April 28, revealing heady double-digit revenue and earnings growth.

The sell-side responded by raising their price targets on Facebook across the board, with Morgan Stanley, JP Morgan, Wedbush and Barclays all boosting their price targets on Thursday.

The catalyst was pretty simple: Facebook beat consensus across the top and bottom-line. Analysts were expecting the tech giant to report quarterly revenues of $23.67 billion and earnings (EPS) of $2.37 per share. Facebook smashed those estimates, reporting Q1 revenues of $26.17 billion and EPS of $3.30.

Overall, Facebook’s Q1 results marked yet another period of impressive growth, highlighting the strength of the social media giant’s momentous scale and reach.

Total revenues climbed 48%, to finish the quarter at $26.17 billion. Income from operations came in at $11.3 billion, while Facebook's operating margins climbed to 43%, up from 33% a year ago.

Importantly, while total costs and expenses rose 25% in the period, earnings growth far outpaced it. Facebook reported Q1 net income of $9.49 billion against EPS of $3.30, implying year-on-year growth of 94% and 93%, respectively.

The company had $64 billion in cash at the close of the quarter.

These operational results were driven by a highly engaged base of users. Daily active users averaged 1.88 billion in March (+8%); while monthly active users, as of March 31, came in at 2.85 billion (+10%), or some 37% of the world’s population. Off-hand remarks musing on the death of Facebook’s platform look to have been grossly overstated.

The stock rallied hard in response to the quarterly, climbing 7.3% to finish Thursday’s session at $329.51 per share – an all-time high for the company.

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FAAMG Valuation Comps

Despite investors responding positively to the Q1, the social media giant continues to trade at a discount to its big-cap tech counterparts, both in terms of its current and forward earnings multiple.

See earnings comps table below:

Below we look at two reasons that potentially explain why Facebook currently trades at a discount to its big-cap tech peers that investors and traders may consider worth pondering:

Facebook continues to face elevated levels of regulatory scrutiny, with the Fair Trade Commission in late 2020 suing Facebook for illegal monopolization practices. The potential implications of this lawsuit are huge – starting at fines and moving all the way upto a break-up between Facebook and its incredibly valuable Instagram and WhatsApp businesses.

The case remains ongoing, but this regulatory overhang and its potentially wide-ranging and, is something likely driving elevated levels of uncertainty around Facebook’s outlook.

iOS14 changes and ad targeting. Apple’s recently launched iOS 14.5 places a distinct focus on privacy, requiring users to opt in or out of having certain pieces of ‘tracked’ data – which companies such as Facebook use to deliver targeted ads – collected. This tracking data has long been a vital component of Facebook helping small and large businesses deliver targeted ads to its mass of users.

The company said it expected the iOS update to start having an impact in the second quarter. Overall, the magnitude of this impact remains difficult to quantify, with Facebook management noting that these changes have just very recently been rolled out.

According to S&P Global, independent marketing consultant Eric Seufert estimated that ‘Facebook could take a 7% revenue hit in the second quarter that will likely continue due to marketers spending less on ads as more iOS users opt out of allowing Facebook to collect their data.’