Shares of Facebook were down more than 1.5% in afternoon trading Thursday, even though the company was able to post solid earnings and revenue figures in its Q4 report. The social media giant continues to grow at an impressive rate, but with investors concerned about higher expenses and a recent legal defeat, the report did not translate into a great day for the stock.
Earnings Performance
Facebook was able to continue its earnings streak by posting better-than-expected EPS figures yet again. The company’s fourth-quarter 2016 adjusted earnings of $1.24 per share beat the Zacks Consensus Estimate of $1.11 per share, and revenue figures of $8.8 billion topped our consensus estimate of $8.5 billion.
Facebook’s monthly active users (MAUs) were up 17% year-over-year to an incredible 1.86 billion. Mobile MAUs were up 21% to 1.74 billion and daily active users grew 18% to 1.23 billion.
Advertising revenues gained 53% year-over-year thanks to increased mobile engagement, a higher number of marketers, and an investment in new products; mobile ad revenues saw growth of 61% and contributed to 84% of total ad revenues.
Costs & expenses increased 29.3% to $4.2 billion, driven by increases in workforce and marketing expenses.
Looking Ahead
As we look forward, Facebook continues to ramp up costs by hiring even more employees and building several data centers throughout the country. The company also recently announced another $250 million investment to develop the VR content ecosystem for its Oculus Rift headset. Much of Facebook’s hiring will focus on artificial intelligence and virtual reality.
In its report, Facebook said that it expects 2017 to be a year of aggressive investments. Capital expenditure is expected to be $7 billion to $7.5 billion and non-GAAP expenses are projected to increase somewhere between 47% and 57%.
With the company already warning investors that its growth figures will begin to face more challenging year-over-year comparisons, it is understandable that investors are concerned about Facebook spending so much cash. Even CEO Mark Zuckerberg has said Oculus might not make meaningful money for the company for another 10 years.
Oculus has also given Facebook a bit of a legal headache recently. On the same day that Facebook released its Q4 report, a Dallas-based jury ruled that Oculus founder Palmer Luckey violated a non-disclosure agreement following Facebook’s acquisition of the VR company in 2014. Facebook will have to pay ZeniMax $500, and it was lucky to avoid additional charges related to stealing trade secrets and misappropriating intellectual property.
Bottom Line
With Facebook kicking off a year of big investments, it makes sense that investors are wary about short-term earnings. Nevertheless, the company has proven time and time again that it can and will continue to grow. These investments very well could unlock the next stages of growth for Facebook. Eventually the site’s MAUs will plateau, and it will need to cash in on its VR and AI investments. By getting a head start on that now, Facebook is setting itself up for a much more comfortable long-term future.
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Why Facebook (FB) Stock Slumped Despite Solid Earnings Report
Shares of Facebook were down more than 1.5% in afternoon trading Thursday, even though the company was able to post solid earnings and revenue figures in its Q4 report. The social media giant continues to grow at an impressive rate, but with investors concerned about higher expenses and a recent legal defeat, the report did not translate into a great day for the stock.
Earnings Performance
Facebook was able to continue its earnings streak by posting better-than-expected EPS figures yet again. The company’s fourth-quarter 2016 adjusted earnings of $1.24 per share beat the Zacks Consensus Estimate of $1.11 per share, and revenue figures of $8.8 billion topped our consensus estimate of $8.5 billion.
Facebook’s monthly active users (MAUs) were up 17% year-over-year to an incredible 1.86 billion. Mobile MAUs were up 21% to 1.74 billion and daily active users grew 18% to 1.23 billion.
Advertising revenues gained 53% year-over-year thanks to increased mobile engagement, a higher number of marketers, and an investment in new products; mobile ad revenues saw growth of 61% and contributed to 84% of total ad revenues.
Costs & expenses increased 29.3% to $4.2 billion, driven by increases in workforce and marketing expenses.
Looking Ahead
As we look forward, Facebook continues to ramp up costs by hiring even more employees and building several data centers throughout the country. The company also recently announced another $250 million investment to develop the VR content ecosystem for its Oculus Rift headset. Much of Facebook’s hiring will focus on artificial intelligence and virtual reality.
In its report, Facebook said that it expects 2017 to be a year of aggressive investments. Capital expenditure is expected to be $7 billion to $7.5 billion and non-GAAP expenses are projected to increase somewhere between 47% and 57%.
With the company already warning investors that its growth figures will begin to face more challenging year-over-year comparisons, it is understandable that investors are concerned about Facebook spending so much cash. Even CEO Mark Zuckerberg has said Oculus might not make meaningful money for the company for another 10 years.
Oculus has also given Facebook a bit of a legal headache recently. On the same day that Facebook released its Q4 report, a Dallas-based jury ruled that Oculus founder Palmer Luckey violated a non-disclosure agreement following Facebook’s acquisition of the VR company in 2014. Facebook will have to pay ZeniMax $500, and it was lucky to avoid additional charges related to stealing trade secrets and misappropriating intellectual property.
Bottom Line
With Facebook kicking off a year of big investments, it makes sense that investors are wary about short-term earnings. Nevertheless, the company has proven time and time again that it can and will continue to grow. These investments very well could unlock the next stages of growth for Facebook. Eventually the site’s MAUs will plateau, and it will need to cash in on its VR and AI investments. By getting a head start on that now, Facebook is setting itself up for a much more comfortable long-term future.
Long-Term Buys You Won't See in the News
The stocks you see in today's headlines may not be in the news tomorrow or next week. If you're looking for profitable long-term investments, you may be interested to see what Zacks Research is recommending to our private members. These moves have double and triple-digit profit potential. Starting now, you can look inside our stocks under $10, home run and value stock portfolios, plus more. Want a peek at this exclusive information? Click here>>