Facebook’s Huge Earnings Beat Shows the Importance of Waving Through the Noise

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After the Nasdaq rebounded 2.2% Wednesday thanks to Apple’s strong earnings performance, the next bellwether report came from Facebook Inc. (FB). Investors and analysts alike eagerly awaited the social media firm’s Q4 financials following a year of outrage and investigations into the company’s data leaks and privacy practices.

Despite top- and bottom-line numbers that flew beyond Wall Street forecasts, Facebook likely isn’t out of the woods yet. With new controversies arising seemingly every week – a new report alleging the firm paid teens for their data just dropped on Tuesday – Facebook is set for more volatility in 2019.

Let’s dive into Facebook’s Q1 2019 earnings report – and nail down exactly how the company has surpassed expectations in the face of scrutiny…

The Numbers

Facebook’s earnings per share (EPS) and revenue for the holiday quarter handily beat estimates, while daily active users (DAUs) and monthly active users (MAUs) met expectations right on the nose.

The company posted $2.38 per share in the October-December period, edging by Wall Street’s expected $2.19 and growing an enormous 65% from the $1.44 per share a year ago. The firm banked $16.91 billion in revenue, beating the consensus analyst estimate of $16.39 billion and crushing Q4 2017’s $12.97 billion by 30%.

The user metrics matched Wall Street’s expectations but still saw solid growth in regions where the company suffered several straight quarters of flat or declining numbers.

DAUs and MAUs clocked in at 1.52 billion and 2.32 billion, with each rising 1.8% from the year-ago quarter. Additionally, DAUs increased in every major geographic region, including the downward sliding Canadian and U.S. markets where each user is worth nearly $35 on average. Facebook added 1 million DAUs in those two territories, while Europe saw a 1.8% jump from 277 million to 282 million.

Additionally, CFO David Wehner announced in the earnings call that Facebook will stop reporting user metrics based just on the Facebook platform, opting instead to incorporate all other platforms like Instagram and WhatsApp where growth is strongest. Wehner said these “family metrics” will offer a much clearer picture of “the size of our community and the fact that many people are using more than one of our services.”

How Investors Reacted

The strong financials provided a massive shot of life into Facebook’s flailing shares, which declined nearly 26% in 2018 toward two-year lows in late December. At its after-hours peak, shares were up 12.4% to $169.02. That marks a roughly 36% rebound from the $124.06 bottom seen on Dec. 24.

The Bigger Picture

Facebook’s more than 12% rally indicates market participants may be restoring their faith in a company that’s fallen from tech darling to battle-wounded media circus in a short period of time.

Providing a comprehensive overview of every Facebook scandal since the 2016 election would be arduous at best, but the election certainly seems like a strong place to start. CEO Mark Zuckerberg was originally scrutinized in 2017 for not deterring more than 3,000 targeted advertisements purchased by Russia during the election season. Many of these ads were later revealed to not just be influencing voting but also perpetuating racial bias toward Muslims and the Black Lives Matter movement.

Still, none of the news really fazed Facebook’s performance that year, with shares posting an annual gain over 53%. The tech sector similarly rallied in 2017, so the argument that a rising tide lifts all boats could be made for the company’s stellar performance in the face of controversy.

It wasn’t until March 2018 that the occasional bumps turned into enormous corrections when the company endured its biggest scandal yet: that Facebook allowed British research firm Cambridge Analytica to mine and harvest the data of up to 87 million users without their consent. In the weeks following the news, shares of Facebook dropped as much as 20%, bringing other Nasdaq stalwarts like Amazon.com Inc. (AMZN) down with it.

But nothing could’ve prepared investors for July 26, 2018. After shares clawed their way back to pre-Cambridge Analytica levels, Facebook released Q2 earnings that not only missed expectations but also gave nightmarishly weak guidance for the rest of the year. The result was a 19% drop to $176.26 per share and a $120 billion erasure in market value, culminating in the single worst day in Facebook’s entire history as a public company.

In the last five months of the year, sellers never let off the gas, dragging shares to their two-year low near $124 in December. Zuckerberg and COO Sheryl Sandberg seemed to be in a constant state of damage control, with a bombshell New York Times article published on Nov. 14 indicating a crisis of leadership among the company’s two most visible execs.

Looking Ahead

It’s safe to call Facebook’s rebound this year shocking considering how the barrage of negative press still has no end in sight. Shares have climbed nearly 15% year-to-date, not even including Wednesday’s enormous post-earnings gain. With the exception of Netflix Inc. (NFLX), Facebook has outperformed every other FAANG stock in January, as well as outpaced the Nasdaq’s more than 8% return over the same period.

The strong Q4 earnings report only further emphasizes the business’s stunning resiliency. Amid an onslaught of criticism over data privacy that’s become a watershed moment in the understanding of data mishandling in the modern world, the company still experienced stunning growth in revenue, profits, and users.

If anything is clear, it’s that Facebook’s products have become such a global force that the business’s profitability appears unassailable in the long term. It may not be for the skittish or faint of heart, but Facebook seems to have nowhere else to go but up as social media grows more prevalent.

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