It has been an interesting earnings season thus far, and as is typically the case these days, some of the season’s more compelling storylines have emerged from the latest results of the so-called “FANG” stocks—Facebook (FB - Free Report) , Amazon (AMZN - Free Report) , Netflix (NFLX - Free Report) , and Alphabet (GOOGL - Free Report) .
For Amazon, a massive earnings miss has pulled share prices down. Netflix also posted an earnings miss—for the first time in years—and yet the stock has moved higher thanks to solid subscriber growth figures.
But perhaps the most interesting FANG-related story to emerge from the latest batch of earnings reports is the contrasting reactions to the results of Alphabet and Facebook.
Indeed, these two companies, who are alike in that they both receive the vast majority of their revenue from advertising, have watched their share prices move in opposite directions since their respective report date, leaving investors to wonder exactly where the best value might be.
But does this price action tell the whole story? Which company really had the better earnings report? As we look ahead, does Facebook or Alphabet provide investors with the better opportunity for profits? Let’s take a closer look.
Facebook posted diluted earnings of $1.32 per share, surpassing the Zacks Consensus Estimate of $1.13 per share and increasing 69% year-over-year. The social media company notched revenues of $9.32 billion, topping our consensus estimate of $9.17 billion and growing 45% year-over-year.
Mobile ad revenue accounted for about 87% of total advertising revenue in Q2, up from about 84% in the prior-year quarter. Daily active users came in at 1.32 billion, a 17% gain, while monthly active users were about 2.01 billion, also a 17% year-over-year jump.
Notably, Facebook said on its investor conference call that full-year expenses will likely rise less than previously expected. Management now thinks expenses will rise about 40% to 45%, instead of the previously-announced 40% to 50%.
Heading into the year, Facebook—which has been building out data centers, hiring new engineers, and developing original content—told investors to expect higher spending this year. Now, it looks like we can expect expenses to come in on the low end of its original guidance, which is a great sign given the company’s continued revenue growth.
Alphabet posted earnings of $5.01 per share, beating Street estimates of $4.39. The company-formerly-known-as Google reported diluted, non-GAAP earnings of $8.90 per share, beating the Zacks Consensus Estimate of $8.17.
Taking out revenues paid to Google Network Members, the company saw revenue figures of $21.76 billion, beating our consensus estimate of $20.83 billion. Google ad revenue was up about 18.5% from the prior-year quarter, aggregate paid clicks were up 52%, and cost-per-click was down 23%.
Alphabet also revealed that, as a result of a recent EU regulatory ruling, the company was slapped with a $2.74 billion fine. GAAP profits, which were affected by the fine, slumped nearly 28% to $3.52 billion.
Interestingly, we’re talking about expenses again here, albeit a considerably less productive type of spending. As Facebook spends more money on investing in its future, Alphabet had to pay a massive one-time bill to the EU.
That fine gets them nothing in return, while Facebook’s spending may end up paying out later. Of course, Alphabet’s fine was just a one-time issue, so future earnings should not be affected.
With updated results comes updated outlooks, and that’s probably what investors are more interested in looking at right now. Check out the latest estimate activity for both companies:
These snapshot paints a much clearer picture of the current sentiment surrounding these stocks. Over the past week, Alphabet’s current-quarter, next-quarter, and next-year earnings estimates have slipped, while Facebook’s have done just the opposite.
Alphabet’s downward estimate movement has been relatively tame, but it’s not headed in the right direction. On the other hand, analysts have been getting more bullish on Facebook, and the company’s earnings estimates have soared recently.
Given its impressive growth, as well as its lowered expense guidance, we can give Facebook the slight edge in a head-to-head comparison of earnings reports. On top of that, it’s very obvious that the latest estimate revision activity also favors Facebook. Finally, Facebook currently sports a Zacks Rank #2 (Buy), which bests Alphabet’s Zacks Rank #3 (Hold) and underscores its strength after reporting.
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