Key Takeaways

  • Q1 adjusted EPS was $1.71 vs. the $2.04 analysts expected.
  • Revenue was higher than expected.
  • MAU and ARPU were both higher than expected.

What Happened

Facebook reported Q1 financial results on April 29, 2020. It reported lower-than-expected earnings, but strong growth in its other main metrics. Revenue, user-base growth, and revenue per user all grew, showing that the core of Facebook's business is strong, even in the face of substantial disruption from COVID-19. Investors seemed to take the news well and Facebook's shares are up by nearly 10% in after-market trading at time of writing.

(Below is Investopedia's original earnings preview, published 4/21/20)

What to Look for

Shares of social networking giant Facebook Inc. (FB) raced far ahead of the broader market in 2019 even as the stock was whipsawed by negative news on privacy issues, regulatory fines, and one-time charges. But this year, the expanding coronavirus pandemic has pushed the stock down sharply from its record highs, recouping only part of its losses in recent weeks. That turmoil is why investors will watch closely how much COVID-19 is hurting Facebook's results, now and going forward, when the company announces Q1 2020 earnings on April 29, 2020 after market close. For Q1, analysts currently are expecting a strong report, with rising monthly active users (MAU), and robust gains in adjusted earnings per share (EPS) even as revenue slows.

To gauge Facebook's health, investors also are likely to focus on two key metrics—monthly active users and average revenue per user (ARPU)— which measure both how much Facebook is expanding its user base and how well it's monetizing it.

In this environment, Facebook stock has barely outperformed the broader market in the past 12 months, with a trailing total return of -1.4% as compared with -2.3% for the S&P 500.

One Year Total Return for S&P 500 and Facebook
Source: TradingView.

For Q1 2020, consensus estimates predict that Facebook will report adjusted quarterly EPS of $2.04, a 20.7% gain YOY compared to a 2.9% decline a year earlier. Like many companies, Facebook's rate of profit growth has slowed markedly as it has grown bigger over the past several years. In Q1 2017, for instance, adjusted quarterly EPS climbed 39.2% YOY, while this figure grew by 49.3% YOY in Q1 2018. But the growth rate slowed sharply to 21.0% growth in Q3 2019 and to 14.5% growth in Q4 2019.

Facebook's revenue growth also has slowed markedly in recent years. Following major YOY growth of 49.2% and 49.0% in Q1 2017 and Q1 2018, respectively, revenue gains decelerated to 26.0% in Q1 2019. Analysts now estimate only a 16.0% YOY revenue gain to $17.5 billion for Q1 2020.

Facebook Key Metrics
  Estimate for Q1 2020 Q1 2019 Q1 2018
Adjusted Earnings Per Share $2.04 $1.69 $1.74
Revenue (in billions) $17.5 $15.1 $12.0
Monthly Active Users (in billions) 2.5 2.3 2.2
Average Revenue Per User $6.89 $6.42 $5.53

Source: Visible Alpha

For social media companies like Facebook, monthly active users, or MAU, is a key indicator for tracking the number of unique individual users to visit a site in a one-month period. Facebook has seen steady MAU growth every quarter for the last four years. However, there has been a general slowdown in the overall rate of increase. The metric climbed 17.0% YOY in Q1 2017, by 13.9% YOY in Q1 2018, and by 8.6% YOY in Q1 2019. Analysts estimate YOY growth of 7.7% in Q1 2020. To some degree, this is to be expected, because Facebook already has a significant global reach and there are a finite number of potential users worldwide.

Just as important as MAU is how much revenue Facebook can generate from its users, which is measured by average revenue per user, or ARPU. ARPU gains also have slowed in recent years, although the drop has been more dramatic. Growth in Facebook's ARPU slowed from 30.6% growth to 16.1% from Q1 2018 to Q1 2019. Now, analysts estimate it will rise by only 7.4% YOY in Q1 2020. To put this in perspective, that Q1 2020 estimated growth rate is less than half of Q1 2019 and less than a quarter the pace of Q1 2018. It may slow even more as the COVID-19 pandemic spreads.