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Facebook Beats Street

October 30, 2020

Facebook reported financial results for the quarter ended September 30, 2020. The firm had earnings of $2.71 cents per share with only $1.91 per share expected. The social networking firm noted revenue of $21.47 billion with Wall Street only looking for $19.8 billion.

"We had a strong quarter as people and businesses continue to rely on our services to stay connected and create economic opportunity during these tough times," said Mark Zuckerberg, Facebook founder and CEO. "We continue to make significant investments in our products and hiring in order to deliver new and meaningful experiences for our community around the world."

Third Quarter 2020 Financial Highlights


 

Three Months Ended September 30,


 

Year-over-Year %
Change


 

In millions, except percentages and per share amounts

2020(1)


 

2019


 

 

Revenue:


 

 

 

 

 

 

Advertising

$

21,221


 

 

$

17,383


 

 

22%


 

Other

249


 

 

269


 

 

(7)%


 

Total revenue

21,470


 

 

17,652


 

 

22%


 

Total costs and expenses

13,430


 

 

10,467


 

 

28%


 

Income from operations

$

8,040


 

 

$

7,185


 

 

12%


 

Operating margin

37%


 

 

41%


 

 

 

 

Provision for income taxes

$

287


 

 

$

1,238


 

 

(77)%


 

Effective tax rate

4%


 

 

17%


 

 

 

 

Net income

$

7,846


 

 

$

6,091


 

 

29%


 

Diluted earnings per share (EPS)

$

2.71


 

 

$

2.12


 

 

28%


 

_________________________

(1)

Our third quarter 2020 effective tax rate was 4%, which reflects a one-time income tax benefit of $913 million related to the effects of a tax election to capitalize and amortize certain research and development expenses for U.S. income tax purposes. Excluding this tax benefit, our effective tax rate would have been 11 percentage points higher and our diluted EPS would have been $0.31 lower.

Third Quarter 2020 Operational and Other Financial Highlights

  • Facebook daily active users (DAUs) DAUs were 1.82 billion on average for September 2020, an increase of 12% year-over-year.
  • Facebook monthly active users (MAUs) MAUs were 2.74 billion as of September 30, 2020, an increase of 12% year-over-year.
  • Family daily active people (DAP) DAP was 2.54 billion on average for September 2020, an increase of 15% year-over-year.
  • Family monthly active people (MAP) MAP was 3.21 billion as of September 30, 2020, an increase of 14% year-over-year.
  • Capital expenditures Capital expenditures, including principal payments on finance leases, were $3.88 billion for the third quarter of 2020.
  • Cash and cash equivalents and marketable securities Cash and cash equivalents and marketable securities were $55.62 billion as of September 30, 2020.
  • Headcount Headcount was 56,653 as of September 30, 2020, an increase of 32% year-over-year.

CFO Outlook Commentary

As expected, in the third quarter of 2020, we saw Facebook DAUs and MAUs in the US & Canada decline slightly from the second quarter 2020 levels which were elevated due to the impact of the COVID-19 pandemic. In the fourth quarter of 2020, we expect this trend to continue and that the number of DAUs and MAUs in the US & Canada will be flat or slightly down compared to the third quarter of 2020.

We expect our fourth quarter 2020 year-over-year ad revenue growth rate to be higher than our reported third quarter 2020 rate, driven by continued strong advertiser demand during the holiday season. Additionally, Oculus Quest 2 orders have been strong which should benefit Other Revenue.

Looking ahead to 2021, we continue to face a significant amount of uncertainty.

We believe the pandemic has contributed to an acceleration in the shift of commerce from offline to online, and we experienced increasing demand for advertising as a result of this acceleration. Considering that online commerce is our largest ad vertical, a change in this trend could serve as a headwind to our 2021 ad revenue growth.

In addition, we expect more significant targeting and measurement headwinds in 2021. This includes headwinds from platform changes, notably on Apple iOS 14, as well as those from the evolving regulatory landscape.

There is also continuing uncertainty around the viability of transatlantic data transfers in light of recent European regulatory developments, and like other companies in our industry, we are closely monitoring the potential impact on our European operations as these developments progress.

We expect 2020 total expenses to be in the range of $53-54 billion, narrowed from our prior range of $52-55 billion.

We anticipate that our full-year 2021 total expenses will be in the range of $68-73 billion, driven by continued investments in product development and technical talent, as well as a return to more normal levels of spend in areas like office operations and travel. However, these are preliminary estimates as we have not yet finalized our 2021 budget.

We expect 2020 capital expenditures to be approximately $16 billion, unchanged from our prior outlook. For 2021, we anticipate capital expenditures to be in the range of $21-23 billion, driven by investments in data centers, servers, network infrastructure, and office facilities. Our outlook includes spend that was delayed from 2020 due to the impact of the COVID-19 pandemic on our construction efforts.

We expect our fourth quarter 2020 effective tax rate to be in the mid-teens and our full-year 2021 tax rate to be in the high-teens.

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