Facebook: Buy The Dip After The Recent Earnings Report

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Facebook (NASDAQ: FB) shares slumped more than 10% last week, after they reported earnings on Wednesday Jan, 29th after market close. The stock ended out the week red as the markets continued to sell off amid heightened Coronavirus fears.

The stock price continued to fall the following days, as investors realized the company’s expenses were rising far too quickly. Expenses for the full year were up 51% YOY.

Despite the company beating on revenue and EPS estimates, Facebook faces increased regulatory scrutiny from analysts on Wall Street. Much of this scrutiny can be attributed to Facebook’s global dominance of social media and online advertising. The FTC (U.S. Federal Trade Commission) hounded CEO, Mark Zuckerberg on his plans to integrate its WhatsApp, Messenger, and Instagram subsidiaries under one banner.

Facebook (FB) stock has suffered from some sharp declines over the past week. These declines seem to be an obvious buying opportunity. Despite increased regulatory concerns, Facebook is still showing growth in its daily active users. Facebook’s DAU’s were $1.66 billion for the quarter, up 9% year over year. It’s monthly active users (MAU’s) were $2.5 billion, up 8% year over year.

Facebook DAU’S Trends

Source: Facebook Q4 Earnings Slide Deck

Facebook’s growth in DAU’s across different geographies show the company’s continued commitment to be a technology company with immense global reach. CEO, Mark Zuckerberg said in a statement, ”We had a good quarter and a strong end to the year as our community and business continue to grow. We remain focused on building services that help people stay connected to those they care about.”

Facebook Average Revenue per User (ARPU)

Source: Facebook Q4 Earnings Slide Deck

The company’s ARPU’s was also up 16% YOY. Facebook ARPU hit a high of $8.52 for the quarter ended December 31, 2019. Average revenue per user is steadily rising across Europe, and Asia-Pacific. These strong user trends in Q4 are likely to carry over into 2020.

Facebook Buyback Program

On Wednesday, Jan 29th the company committed to adding an additional $10 billion to its share buyback program. This adds to the existing buyback program, bringing it to a total of $24 billion. The company said in it’s 8-K filing, ”This increase is incremental to prior authorizations.”

What’s Next For Facebook

Given the company’s sharp rise in expenses, investors have been wary about the company’s increased spending. However, as the 2020 U.S. elections kick off you can expect a year of accelerating revenue growth for Facebook as billions of dollars begin to pour into advertising. Facebook’s is currently trading at a Forward P/E of 18.44, which is very attractive. Their balance sheet is sound sitting on roughly $55 billion in cash, and $36 billion in operating free cash flow. Facebook is a bargain at these prices, and is a ”sit it and quit it” investment over the next 5 years.

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