IB Net Payout Yields Model

Facebook: That Was Easy

After the close, Facebook (FB) reported Q4 results that smashed estimates. The stock is up 12% in initial after-hours trading and will likely stay above $150 for good now.

  • Q4 GAAP EPS of $2.38 beats by $0.20.
  • Revenue of $16.91B (+30.4% Y/Y) beats by $510M 
The most impressive number is that revenue growth came in over 30% when analysts were only expecting 26% growth. Expenses came in at an incredible 62% growth led by a huge jump in R&D expenses to $2.8 billion from only $1.6 billion last year.

This move generally supports my theory that Facebook will start focusing more on AI to improve the health of the social platform. Now lets see where the company guides on expenses for 2019. My prediction was somewhere around 45% growth, though the forecast may start the year off at 50% growth. 

Update - 5pm

Facebook made the following guidance for Q1 and 2019:
  • Q1 revenues - growth rate to decelerate by a mid-single digit % 
  • 2019 expenses to grow by ~40-50%
  • 2019 capital expenditures at $18-$20 billion
  • 2019 tax rate a few % points above 2018 rate of 13%. 
- So reading between the lines, Facebook is forecasting about 25% revenue growth in Q1, above analysts down at 23.4%. 
- The expense growth is already at my forecast of a reduction to 45% growth for the year My forecast now is that expenses will only come in at 40% for 2019. 
- The effective tax rate is at the predicted 15% level.  

My base case of 20% revenue growth and 40% expense growth along with a 15% tax rate got the company to an EPS estimate of nearly $7. Faster growth and lower expenses combined with lots of share buybacks quickly pushes the estimates above $7.50.  

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