Despite the various antitrust, privacy, and FTC issues that Facebook (Nasdaq: FB) is dealing with, it recently announced a stellar third quarter performance. The better than expected revenue and earnings results helped the stock climb 2% in the after-hours session.
Facebook’s Q3 revenues grew 29% over the year to $17.65 billion, ahead of the market’s estimates of $17.37 billion. Net income was $6.09 billion or $2.12 per share was significantly better than previous year’s net income of $5.14 billion or $1.76 per share. The market was looking for an EPS of $1.91 per share.
By segment, advertising revenues grew 28% over the year to $17.38 billion, ahead of the market’s forecast of $17.09 billion. Revenues from payments and other fees grew 43% to $269 million.
Among key metrics, daily active users increased 9% to 1.62 billion and monthly active users grew 8% to 2.45 billion. Facebook estimated that 2.2 billion people use Facebook, Instagram, WhatsApp, or Messenger every day on average. On an average the user base grows to 2.8 billion people each month.
Facebook does not provide an outlook. But it did reveal that based on the new rules and product changes that have to be initiated to meet the data privacy concerns, revenue growth will slow down and expenses will rise significantly. In the shorter-term, the market is looking for revenues of $20.94 billion with an EPS of $2.49 for the quarter and revenues of $70.25 billion with an EPS of $6.40 for the year.
Facebook’s Political Advertising
The upcoming Presidential election in the US has resulted in Facebook undergoing a much heavier scrutiny. In the last elections, Facebook was accused of taking a lax attitude on false advertising that led to misinformation amongst the public. Facebook has maintained that for the 2020 elections it will not fact check posts from politicians, including advertisements. Facebook believes that it is offering the politicians access to a forum for free speech and fact checking will curb that freedom. Several politicians and parts of the public are not impressed by this stand.
Facebook admitted that the upcoming elections will result in a “very tough year” as it continues to navigate to what it believes is the right thing to do. Overall political advertising is expected to be a very small portion of Facebook’s revenues – an estimated 0.5% of its revenues for the next year.
Facebook’s stand on political advertising is in stark contrast to Twitter’s stand on political ads. Twitter has announced that it will not run any political ads on its platform. Twitter believes that a politician should not be able to buy a highly targeted advertisement mechanism.
Facebook’s Hardware Focus
Meanwhile, Facebook is expanding its operations in delivering hardware. Earlier this quarter, it announced the upgrade for Portal, its video chat device. Portal is Facebook’s attempt at delivering a smart device for home users that acts as a smart photo frame and allows users to video chat with each other using WhatsApp or Facebook Messenger. The new Portal retails for $129 for the 8-inch model and $179 for the 10-inch model. The device offers the ability to host a video conference with four users simultaneously on WhatsApp and eight users on Facebook Messenger. It is still a much smaller number compared with Apple’s FaceTime that allows for calls to up to 32 users. It has also improved the microphone, video, and audio capabilities of the new device.
Recently it also announced that it had entered into a partnership with Luxottica, the parent company of Ray Ban glasses. As part of the agreement, the two companies are working together to develop augmented-reality Ray-Ban glasses. Codenamed Orion, the glasses are expected to be ready by 2023 and in the longer run will end up replacing smartphones. The glasses would allow users to take calls, show information to users in a small display and live-stream to social media.
Besides hardware, Facebook is also working on improving its AI capabilities. Earlier this month, it announced the acquisition of a New York startup called CTRL-Labs. CTRL-Labs specializes in allowing humans to control computers using their brains. The company has been working on building a device that can be worn on a wrist and can be used by people to control their other devices. Founded in 2015, CTRL-Labs has raised $67 million in funding so far and is estimated to have $15 million in annual revenue. Analysts believe that Facebook paid somewhere between $0.5-$1 billion for the company’s technology.
Its stock is trading at $191.65 with a market capitalization of $546.7 billion. It was trading at a 52-week high of $208.66 in July this year. It had fallen to a 52-week low of $123.02 in December last year.