Key Takeaways

  • EPS was $3.88 vs. the $3.16 analysts predicted.
  • Revenue also surpassed consensus estimates.
  • Monthly active users for Q4 were higher than predicted.
  • Facebook predicts significant ad targeting headwinds in 2021 as a result of platform changes and the changing regulatory landscape.

What Happened

Facebook crushed analyst predictions across EPS, revenue, and monthly active users (MAU) for Q4 FY 2020. EPS of $3.88 was up significantly from the $3.16 predicted and represents a major improvement of roughly 52% over $2.56 from Q4 FY 2019. Total revenue climbed by about 33% YOY, also exceeding analyst predictions. Significantly, Facebook also continued to grow its MAU base, reporting 2.8 billion monthly active users for the quarter, also ahead of consensus estimates. These strong results could position Facebook well as the company expects to face ad targeting headwinds due to platform changes and shifting regulations in 2021.

(Below is Investopedia's original earnings preview, published January 26th, 2021.)

What to Look For

Despite major headwinds, Facebook Inc. (FB) has seen its stock, earnings and traffic surge in the past year as millions of people have worked at home amid the COVID-19 pandemic. But that success also has launched major opposition to the world's largest social network. Critics say the company has failed to take necessary actions to stop hate speech and posts advocating political violence. Most ominous, in December the Federal Trade Commission and attorneys general from 46 states filed antitrust suits against Facebook, calling for the company to sell its popular WhatsApp and Instagram features.

Investors will look to see how these forces are affecting the company's financial results when Facebook reports earnings on January 27, 2020 for Q4 FY 2020. Analysts predict that earnings per share (EPS) will rise sharply, although at a slower pace than previous quarters in 2020. Revenue is expected to rise at a faster rate than the past three quarters.

Another key metric investors will focus on is Facebook's monthly active users (MAU), a key gauge of user engagement and a major driver of ad revenue. Analysts expect Facebook to gain monthly active users at a faster rate than Q4 FY 2019 but at a slower pace than the first three quarters of 2020.

After tumbling along with the broader market in early 2020 as the COVID-19 pandemic gained force, Facebook stock made a sharp recovery ahead of the market throughout the spring and summer. The company's stock then largely traded sideways between September and December, and pulled back in mid-January before rebounding. Despite these wide swings, Facebook's shares have provided a total return of 24.0% over the past 12 months, still ahead of the S&P 500's total return of 15.7% as of January 23, 2021.

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

Facebook's quarterly revenue has grown at a rapid pace in recent years. In 2017 and 2018, the company posted quarterly revenue growth of at least 30.3% each quarter. This pace has slowed in the last two years, dipping as low as 10.7% for Q2 FY 2020. For Q4 FY 2020, analysts expect that Facebook's revenue to increase by 24.6%, the strongest quarter of FY 2020 and the same growth as a year earlier.

Facebook's quarterly EPS performance has been less consistent in recent years. The first two quarters of FY 2019 saw sharp declines year-over-year (YOY) in EPS. By contrast, the company posted its two strongest quarters of EPS growth YOY in Q1 and Q2 FY 2020, at 101.9% and 97.7%, respectively. Consensus estimates place Q4 FY 2020 EPS growth at 23.3%. That's lower than the previous three quarters of FY 2020 but a sharp acceleration relative to 7.3% in Q4 FY 2019.

Facebook Key Metrics
  Estimate for Q4 FY 2020 Actual for Q4 FY 2019 Actual for Q4 FY 2018
Earnings Per Share ($) 3.16 2.56 2.38
Revenue ($B) 26.3 21.1 16.9
Monthly Active Users (B) 2.7 2.5 2.3

Source: Visible Alpha

As mentioned, investors will look closely at Facebook's MAU, which is the number of unique individual users to visit a site in a one-month period. MAU is a gauge of how many people see the ads that Facebook sells, and therefore how much money the company can make through ad sales is dependent upon MAU. While Facebook's MAU is continuing to grow, a general slowdown trend is to be expected. That's because Facebook already has deeply saturated most global consumer markets and has an estimated 2.7 billion MAU. As a result, fast growth is becoming more difficult to achieve off of such a large base.

Facebook's MAU has grown every quarter for at least three years. Overall, though, there has been a gradual slowing down in the rate of MAU growth over this period. YOY MAU growth in Q4 periods has slowed from 14.5% in Q4 FY 2017 to 9.0% in Q4 FY 2018 to 7.6% in Q4 FY 2019. For Q4 FY 2020, analysts predict a slight uptick in MAU growth to 9.1%. That's a higher rate of growth than every quarter in 2019, but it's slower than the first three quarters of FY 2020.