Facebook is really a technology stock? Produced by
| 异观 Finance
Author | Hyun Ye Baixue
Beijing time July 31, Facebook announced the unaudited financial report for the second quarter of the 2020 fiscal year ending June 30 on Thursday. On the whole, the financial performance of Facebook in the second quarter was impressive. After the release of the financial report, Facebook rose more than 6% after the market.
So, some investors will ask, what is the current share price of Facebook? Is it a good time to invest in Facebook?
First of all, Yiguan Finance stated that the members of the Yiguan team did not hold Facebook stocks and did not constitute any suggestions for investment. Next, Yiguan Finance only made a simple analysis based on the financial performance, business model and risk factors of Facebook for investment.者 Reference.
Facebook is really a technology stock?
1. Its product portfolio is mainly social application products.
Facebook’s products mainly include: Facebook, Instagram, Messenger, WhatsApp and Oculus. The
Facebook app application enables people to connect, share, discover and communicate with friends, family or people with the same interests on mobile devices and personal computers.
Instagram is a free mobile application through which users can share photos, videos and private messages publicly or privately.
Messenger is a messaging application for people to contact friends, family, groups and businesses across platforms and devices.
WhatsApp-WhatsApp is a messaging application for people and companies to communicate privately.
Oculus is the company's hardware, software and developer ecosystem, allowing people to connect with the world around them through its Oculus virtual reality products.
combines the above product portfolios, and the products under Facebook are more social application products.
2. The main source of income depends on advertising
Facebook's revenue sources include advertising income and other income. Advertising has always been the main source of revenue for Facebook. According to the
financial report, Facebook’s revenue in the second quarter was US$18.687 billion, an increase of 11% from US$16.886 billion in the same period last year, and an increase of 5% from US$17.737 billion in the first quarter. In the second quarter, Facebook advertising revenue was 18.321 billion US dollars, an increase of 10% from 16.624 billion US dollars in the same period last year, and an increase of 5% from 17.440 billion US dollars in the first quarter. During the reporting period, 98% of Facebook's revenue came from advertising.
From the perspective of regional releases, the United States and Canada contributed the most to its advertising. According to the financial report, advertising revenue in the US and Canada was US$9.059 billion, contributing 47% of advertising revenue; advertising revenue in Europe was US$4.411 billion, contributing 24%; advertising revenue in the Asia-Pacific region was US$3.312 billion, contributing 18%; advertising revenue in other regions was US$1.539 billion , Contributing 8%. Among them, advertising revenue growth in the United States and Canada recovered the fastest.
(Source: Facebook Financial Report)
During the reporting period, Facebook’s revenue was US$366 million, an increase of 40% from US$262 million in the same period last year, and an increase of 23% from US$297 million in the first quarter. This increase in revenue is mainly due to Oculus headsets and portalsIncrease in product sales.
From the perspective of Facebook's product portfolio and revenue sources, it seems far-fetched to regard Facebook as a technology stock compared to technology stocks like Microsoft.
Next look at Facebook's R&D expenditure. The financial report shows that in the second quarter of fiscal 2020, Facebook's R&D expenditure was US$4.462 billion, an increase of 35% from US$3.315 billion in the same period last year, and an increase of 11% from US$4.015 billion in the first quarter. The increase in
R&D expenses was mainly due to the increase in investment in core products and innovative products such as AR/VR by Facebook this quarter.
Although Fcaebook's quarterly research expenses have maintained growth, the proportion of R&D expenses in terms of revenue has not increased much, remaining at about 20%.
(data source: Facebook financial report)
huge user data formed Facebook moat
Facebook through its Facebook app, Instagram, Messenger and WhatsApp products, strengthened its network effect and has become a social media leader. The main source of income of
Facebook is advertising, so the trend of the number of users will affect the advertiser's decision-making, and therefore will directly affect the income and financial performance of Facebook. Since the outbreak of the global epidemic, Facebook daily active users and monthly active users have maintained a double-digit year-on-year growth in both Q1 and Q2. The sudden epidemic has reduced people's offline activities, because users shifted more leisure methods from offline to online, which also brought more users and ad clicks to Facebook.
According to the financial report data of Facebook, in June 2020, the average number of daily active users of Facebook was 1.79 billion, an increase of 12.6% from 1.59 billion in the same period last year, and an increase of 3.5% from 173 million in the first quarter.
(data source: Facebook financial report)
financial report shows that as of June 30, 2020, the number of monthly active users was 2.70 billion, an increase of 12% from 2.41 billion in the same period last year and an increase of 3.8% from the 2.60 billion in the first quarter.
(data source: Facebook financial report)
However, it should be pointed out that Facebook lacks regulatory review on hate speech and misinformation, and its controversial traffic is being criticized.
In the middle of this month, the six major non-profit organizations launched the "Stop Hate for Profit" (stop using hatred to make money, that is, accusing Facebook of condoning hate speech on the platform for profit) campaign.
's move has received positive responses from global brands. As of July 1, 434 companies, institutions, artists, and politicians have announced their participation in the action. Many companies have promised to suspend advertising on the Facebook platform, including well-known companies such as Adidas, Ford Motor and HP. The boycott will have a certain impact on Facebook's revenue.
However, Deutsche Bank analyst Lloyd Walmsley is optimistic about the short-term and medium-term prospects of Facebook. Walmsley believes that this wave of boycotts is likely to be only temporary. Although some advertisers choose to suspend advertising on Facebook for long-term development considerations, for others who rely heavily on the platform to reach specific audiences Said, they seem to have no choice.
Judging from the chain growth rate of daily active users and monthly active users of Facebook, the daily active users of Facebook in the second quarterThe quarter-on-quarter growth rate of 3.5% was lower than the quarter-on-quarter growth rate of 4.2% in the first quarter; the quarter-on-quarter growth rate of monthly active users of 3.8% in the second quarter was lower than the 4% quarter-on-quarter growth rate in the first quarter. From this point of view, the traffic dividend brought by the epidemic to Facebook is gradually weakening.
When the dividends disappear, the retention rate, participation of users, and the length of time spent on the platform or product will also affect the financial performance of the company. The epidemic will eventually pass. By then, the final retention rate of users who have grown during the epidemic of Facebook will directly reflect the loyalty and stickiness of users to Facebook.
Operating profit margin is a measure of the operating efficiency of a company, reflecting the company's ability to make profits without considering non-operating costs. In other words, the higher the operating profit rate of a company, the more operating profit the company's products provide, and the stronger the company's profitability; conversely, the lower the operating profit rate, the weaker the company's profitability. According to the financial report data of
, the net profit of Facebook in the second quarter was US$5.178 billion, an increase of 98% from the net profit of US$2.616 billion in the same period last year; operating profit was US$5.963 billion, an increase of 29% from US$4.626 billion in the same period last year; operating profit margin At 32%, the operating margin for the same period last year was 27%.
(data source: Facebook financial report)
As can be seen from the above figure, Facebook generally has a higher operating margin in the third and fourth quarters of each year, while the operating margin in the first and second quarters is lower. In fiscal 2020, due to the positive effects of the epidemic, the operating margins of Facebook in fiscal year Q1 and Q2 Facebook in fiscal year 2020 have also increased significantly compared to Q1 and Q2 in fiscal year 2019.
Facebook's potential risks
1. Regulatory risks
Regulatory pressure is still the biggest risk facing Facebook this year. Facebook is currently undergoing an antitrust investigation from the US Congress. The previous acquisitions of Instagram and WhatsApp by Facebook have been questioned as a monopoly on social media. In the financial report outlook, Facebook mentioned that over time, the impact of regulation on the advertising business may become more and more important.
Regulators around the world may impose restrictions on Facebook’s compilation of certain user and usage data and how to use this data. And, some governments may simply prohibit access to Facebook, which may lead to user growth and reduced user interaction.
2. Direct and potential competitors increase
Facebook There is a competitive relationship with companies that sell advertising and companies that provide social, media and communication products and services. For example, Facebook competes with Apple in messaging; Google and YouTube in advertising and video; Tencent and Snap in messaging and social media; ByteDance and Twitter on social media.
Facebook CFO David Wehner (David Wehner) said that the upcoming Apple iOS 14 operating system may undermine the social network’s ability to deliver accurate advertising. Apple will ask users in this new system whether they want to let app developers track their activities on other apps and websites.
"We are still trying to understand these changes and how they affect us and other companies in the industry. But at least this will make it more difficult for app developers and others to use ads on Facebook and elsewhere," Wiener said.
Wiener said that the change may affect Facebook advertising from the third quarter of this year, but it will have a more significant impact in the fourth quarter.
The recent TikTok appeared and attracted users to leave FacebThe risks of ook and its applications still exist. According to previous financial data of Facebook, the country/region with the fastest user growth is India. In June of this year, India suddenly announced the ban on 59 Chinese apps, including TikTok. This created conditions for Facebook to snatch Indian TikTok users.
According to the "Wall Street Journal", Instagram under Facebook is launching a creative incentive program, which is mainly aimed at online celebrity creators with millions of fans on TikTok.
Chinese Internet companies' innovative capabilities and strong "combat" capabilities are making Facebook and others feel the sense of crisis. Normally, users have a limited amount of time to use social products. Therefore, the frequency, duration, and engagement of other social platforms/products may "divide" the user's use of social application products under Facebook, weakening Facebook users Participation reduces the potential return on investment of Facebook advertisers.
Currently, Facebook’s revenue relies heavily on advertising, and the reduced return on investment of advertisers will affect advertisers’ willingness to put it on, which in turn will have a negative impact on Facebook’s revenue.
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