Facebook (FB 167.12, +16.70, +11.10%) shares surged in pre-market trade and opened higher
by 10% after the company reported better than expected fourth quarter results
and offered strong first quarter guidance last night.
Fourth quarter earnings grew 65% to $2.38/share despite a 62% increase in expenses. Revenue grew 30% vs. +23-28% guidance. Average revenue per user (ARPU) grew 21% sequentially to a new record of $7.37. ARPU in the U.S. and Canada surged 26% $34.86.
Facebook credits strength in the quarter to the performance of direct response ads, increased ad load on Instagram, and success with stories.
Instagram is a behemoth. Monetization efforts for the platform have been underway for years now, but the company has yet to disclose any of its revenue metrics -- that represents an ace up management's sleeve. Instagram has over one billion users and has anecdotally become the most popular social media app by far, at the expense of Snap (SNAP) and Twitter (TWTR).
Amid ongoing scandals and consecutive misses on the top line, expectations were unusually low for Facebook heading into the print.
The company guided first quarter revenue just above estimates (~25% growth vs. ~24% consensus).
Management warned that revenue growth would decelerate throughout 2019, in-line with recent commentary. Wall Street's estimate for 24% revenue growth ticked down just a bit, but earnings estimates for 2019 are mostly unchanged after the company reaffirmed expense guidance (+40-50%) for 2019.
Facebook had missed revenue estimates two quarters in a row for the first time ever in its most recent prior quarters, and as a resultant, expectations for the company’s fourth quarter report were unusually subdued. Now, investors are clearly happy to see the company bounce back with a beat and raise report.
The company has flexed its ad muscles, showing that it has levers to pull on the top line that will result in a resumption of earnings growth in the not-too-distant future.
The stock moved up 11% to a four-month high, testing its 200-day moving average near $167, in pre-market.
Facebook's market cap is ~$475 bln. The stock trades at ~22x earnings estimates for the year, which is below its historical average, as increased expenses weigh on the bottom line near-term.
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