Facebook (FB) is trading modestly lower after reporting another strong quarter as the company also warned about higher expenses next year.
Third quarter results were exceptionally strong. Facebook exceeded Wall Street estimates on the top and bottom line for the tenth straight quarter.
Earnings grew 77% to $1.59/share as advertising revenue was up 49% to $10.1 billion. Mobile advertising revenue represented ~88% of advertising revenue for the third quarter of 2017, up from an ~84% mix in the third quarter of 2016.
Facebook's user data is also staggering. Daily active users were up 16% to $1.37 billion while monthly active users were up 16% to 2.07 billion. To put that in perspective, there are ~7.5 billion people on earth and ~3.9 billion people using internet.
The stock broke out to new all-time highs before the third quarter report, and now it is pulling back today. On the call, CEO Mark Zuckerberg said operating expenses would grow 45-60% next year, while also lowering the operating expense growth outlook to 35-40% from 40-45% for this year. He also said that capital expenditures would double in 2018.
Facebook plans to invest in security, video and artificial intelligence. Mark Zuckerberg also acknowledged Russia's meddling in the Presidential elections last year.
"Our community continues to grow and our business is doing well," said Mark Zuckerberg. "But none of that matters if our services are used in ways that don't bring people closer together. We're serious about preventing abuse on our platforms. We're investing so much in security that it will impact our profitability. Protecting our community is more important than maximizing our profits."
While the stock is trading lower today, it is important to note that the elevated operating expense guidance is typically conservative. It would not be a huge surprise to see that growth get pared down as next year progresses.
What's more, despite the higher expense guidance, earnings estimates for 2018 are actually slightly higher than they were yesterday because revenue expectations rose.
It's important to note that the company still has revenue levers to pull in terms monetizing its massive user base outside of its core Facebook app..
Facebook has a ~$520 billion market cap and trades at ~30x earnings estimates or ~27x next year's estimates.