Facebook Inc. (NASDAQ: FB) extended its rally after hours Wednesday on news that the company surpassed analysts’ median estimates for second-quarter earnings and revenue. Despite being a punching bag for critics, Facebook managed to kill two birds with one stone: Settle the largest-ever privacy fine and maintain a solid upward trajectory in profits and revenues.
Q2 Earnings Summary
- Earnings: $1.99 per share
- Revenue: $16.9 billion
- Daily active users: 1.59 billion
The world’s largest social media network surpassed estimates for its most recent quarter thanks to sustained user growth across its various platforms. The company earned $1.99 per share on revenues of $16.9 billion, easily outpacing forecasts for $1.88 per share on revenues of $16.5 billion.
The profit figure comes with an asterisk: It represents what the company would have earned had it not been for a $5 billion settlement with the Federal Trade Commission and an accounting change regarding tax deductions.
Facebook’s daily active users were numbered at 1.59 billion during the second quarter, matching forecasts. Monthly active users were 2.41 billion, also matching forecasts.
On average, Facebook generated $7.05 in revenue per user, well above the $6.87 forecast by FactSet. This component was up 18% year-over-year.
During the earnings call, chief financial officer David Wehner said the company will need to boost investments in “compliance, processes, people and technical infrastructure” in order to meet new regulatory guidelines around privacy.
FB Stock Continues Higher
Shares of FB shot up in after hours trading, rising as much as 3%. It would later pare most of its gains.
The stock rose 1.1% in regular New York trading, which helped the Nasdaq Composite Index hit new record highs. Year-to-date, the company is up 56%.
Source: Yahoo Finance
There’s a lot of backstory behind those gains. For starters, it was 12 months ago that Facebook posted the largest one-day drop in U.S. stock trading history. The company shed a staggering $120 billion in market cap on July 26, 2018 after a skittish earnings call revealed the lowest daily active user growth in at least seven years. It was around that time that many in the investing community were coming around to Facebook’s Cambridge Analytica scandal, which first entered mainstream consciousness in early 2018.
Wall Street’s epic fourth-quarter meltdown extended Facebook’s brutal half-year stretch. FB reached rock bottom on Christmas Eve when it closed at $124.06 a share. Less than six months earlier, it was trading at record highs.
Since hitting rock bottom, Facebook’s share price has rebounded 65%.
Conclusion
Facebook’s acquisition of Instagram and the successful monetization of Stories across all of its platforms have catapulted the social media company higher. As long as it keeps growing its active user base, advertisers will continue to come. Against this backdrop, betting against Facebook might not be a good idea.
Disclaimer: Author holds no investment position in Facebook at the time of writing.
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