Key Takeaways

  • Analysts estimate EPS of $2.99 vs. $1.80 in Q2 FY 2020.
  • Monthly active users are expected to rise YOY, but at the slowest pace in at least 16 quarters.
  • Revenue is expected to expand at its fastest pace in at least four years amid the accelerating shift to online commerce triggered by the pandemic.

Facebook Inc. (FB) is experiencing unusually strong earnings and revenue growth as more people spend increasing amounts of time and money online amid the COVID-19 pandemic. To build on its success, the social media company is investing heavily in virtual reality (VR) and augmented reality (AR) to create new digital worlds that multiple people can inhabit simultaneously. Facebook calls these digital worlds the "metaverse." These new technologies could attract new users and boost the growth rate of Facebook's global user base, now numbering just under 2.9 billion.

Investors will watch for details about Facebook's new initiatives, and also about its financial performance, when it reports earnings after the market closes on July 28, 2021 for Q2 FY 2021. Analysts are expecting robust growth in earnings per share (EPS) as revenue is forecast to rise at its fastest pace in at least four years.

Investors will also be focusing on Facebook's monthly active users (MAUs), a key metric that measures the size of the company's user base. Analysts expect the company's MAUs to rise compared to the year-ago quarter, but at their slowest pace in at least the past four years.

Facebook's shares have outperformed the broader market over the past year. The stock has been extremely volatile, alternating between periods of outperformance and underperformance. After lagging the market for much of the earlier part of 2021, the stock began to outpace the market in late March. The outperformance gap has widened since around mid-May. Shares of Facebook have provided a total return of 59.5% over the past year, well above the S&P 500's total return of 36.5%.

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

Facebook Earnings History

The stock surged after Facebook reported Q1 FY 2021 earnings that smashed analysts' expectations. The company's EPS rose 92.8% compared to the year-ago quarter, marking the second straight quarter of accelerating earnings growth. Revenue grew 47.6%, the fastest pace of growth since the first quarter of FY 2018. In its report, the company highlighted its strong ad revenue growth, which was driven by increases in the average price per ad as well as the total number of ads delivered.

In Q4 FY 2020, Facebook also beat analysts' earnings and revenue forecasts. EPS rose 51.7% compared to the year-ago quarter. Revenue climbed 33.2%, continuing an acceleration trend that began in the previous quarter. The company said that its business has benefitted from two broad trends during the pandemic: the ongoing transition towards online commerce and a shift in consumer demand from services to products. These changes have helped to boost the company's ad business said Facebook.

Analysts expect continued strength in Facebook's financial performance in Q2 FY 2021. EPS is expected to rise 66.4%, decelerating from the prior quarter but still a robust pace. Revenue is expected to expand 49.0%, which would be the fastest pace in at least 16 quarters. For full-year FY 2021, analysts estimate that EPS will rise 29.1%, slowing from last year's pace of 57.1%. Revenue is expected to grow 34.7%, which would be the fastest pace since FY 2018.

Facebook Key Stats
  Estimate for Q2 2021 (FY) Q2 2020 (FY) Q2 2019 (FY)
Earnings Per Share ($) 2.99 1.80 0.91
Revenue ($B) 27.9 18.7 16.9
Monthly Active Users (B) 2.9 2.7 2.4

Source: Visible Alpha

The Key Metric

As mentioned above, investors will also be focused on Facebook's MAUs, a key metric providing a measure of the size of the company's global active user base. Facebook defines a MAU as a registered and logged-in user who visited Facebook through its website or a mobile device, or used its Messenger app sometime during the 30 days of the measurement period. Facebook derives the majority of its revenue through selling advertising space on its social media sites and apps to marketers. The bigger its user base, the more attractive its platform is to advertisers. A bigger user base also makes it easier to attract new users as people want to be on Facebook because their friends are on it, a classic example of the network effect. Another related metric is Facebook's average revenue per user (ARPU), a gauge of how well the company is monetizing its user base.

Annual growth in Facebook's MAUs has been slowing for at least several years now. In FY 2016, the company's MAUs rose 16.8% to a total of 1.9 billion. Growth slowed to 14.5%, 9.0%, and 7.6% in each subsequent fiscal year, respectively. However, growth picked up to 12.0% last year as the pandemic and related shelter-at-home measures led to a surge in online activity. In the first quarter of FY 2021, total MAUs grew at a pace of 9.6% compared to the year-ago quarter, the slowest pace since Q1 FY 2020. Analysts expect further deceleration in Q2 FY 2021, with growth slowing to 7.5%, which would be the slowest pace of growth in at least the past 16 quarters. For full-year FY 2021, analysts are currently forecasting the number of MAUs to rise 6.0%, which would be the slowest pace in at least the past six years. But that would bring the total number of MAUs to approximately 3.0 billion.