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Why Is Facebook (FB) Up 1.5% Since the Last Earnings Report?

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About a month has gone by since the last earnings report for Facebook, Inc. (FB - Free Report) . Shares have added about 1.5% in that time frame, outperforming the market.

Will the recent positive trend continue leading up to the stock's next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Facebook’s Q2 Earnings & Revenues Beat Estimates

Facebook reported yet another better-than-expected quarterly performance. The company’s second-quarter 2017 earnings of $1.32 per share and revenues of $9.321 billion handily beat the Zacks Consensus Estimate of $1.14 and $9.173 billion respectively.

Facebook’s Mobile and live video efforts continue to pay off big time. Instagram has also emerged as an important cash cow.

Quarterly Numbers in Details

Revenues surged 47% from the prior-year quarter, excluding the impact of year-over-year changes in foreign exchange rates basis.

Facebook’s consistently expanding user base remains one of its biggest growth catalysts. Its monthly active users (MAUs) were up 17% year over year to a staggering 2.01 billion. Daily Active Users (DAUs) were 1.32 billion, reflecting a 17% increase year over year.

Advertising revenues were $9.164 billion, jumping 47% year over year. Growth was driven by increasing mobile engagement, higher number of marketers and consistent investment in new products.

Mobile ad revenues in the quarter were $8 billion (up 53% year over year), contributing 87% to total ad revenues. Ad impressions grew 19%, driven by surging mobile ad impressions on both Facebook and Instagram platforms. Average price per ad increased 24% from the year-ago quarter.

Payments and other fees decreased 20% year over year to $157 million in the reported quarter, owing to a reduction in payment revenues related to PC games. Management expects revenues from this segment to face further decline as PCs lose market share. 

Cost and expenses elevated 33% to $4.92 billion due to increase in workforce and marketing expenses. However, robust revenue growth provided enough cushion to operating margins. Operating income of $4.4 billion grew 61% year over year.

Balance Sheet & Cash Flow

Facebook exited the quarter with cash and cash equivalents, and marketable securities of $35.45 billion.

The company generated nearly $5.36 billion of cash flow from operating activities in the second quarter of 2017 compared with $3.67 billion in the year-ago period. Free cash flow was $3.92 billion compared with $2.67 billion in the year-ago quarter. The company incurred capital expenditure of $1.44 billion in the reported quarter.

Outlook

GAAP expenses are projected to increase in a band of 40­–45%, narrower than the earlier expected range of 40–50%. Capex is likely to be at the lower end of the earlier guided range of $7–$7.5 billion. The company anticipates 2017 to be a year of aggressive investments. It plans to build more data centersas well as recruit more engineers to fuel its artificial intelligence (AI) and augmented reality/virtual reality (AR/VR) technology ambitions.

How Have Estimates Been Moving Since Then?

Analysts were quiet during the last month as none of them issued any earnings estimate revisions.

Facebook, Inc. Price and Consensus

 

VGM Scores

At this time, Facebook's stock has a great Growth Score of A, though it is lagging a bit on the momentum front with a B. The stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Our style scores indicate that the stock is more suitable for growth investors than momentum investors.

Outlook

Notably, the stock has a Zacks Rank #3 (Hold). We expect in-line returns from the stock in the next few months.




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