Facebook, the social media giant, which also owns Instagram, WhatsApp and Oculus VR, reported Q1 2021 results which exceeded market expectations on all key metrics. Facebook reported $26.2 billion in revenue, an increase of 48% and well ahead of analyst estimates of $23.7 billion. The bulk of the revenue ($25.4 billion) was again generated from advertising spend with 44% of this generated in North America. Average revenue per user (ARPU) increased by 33% with Europe recording the highest rate of growth (46%) followed by the US & Canada (41%). Facebook also reported an average of 1.88 billion daily active users and 2.85 billion monthly active users for the quarter, up 8% and 10% year-over-year, respectively.
EPS (Earnings Per Share) surged by 93% year-on-year to $3.30 per diluted share which was also well ahead of consensus estimates of $2.30. The company now trades on a trailing twelve month PE multiple of 28x, a discount to the S&P 500.
·Fee cash flow (cash generated after investment expenditure) rose 6% year on year to $7.8 billion in Q1 and by 4% to $23.5 billion on a trailing 12 month basis. Since 2016, free cash flow has nearly doubled highlighting the outstanding quality of the business. Cash and cash equivalents and marketable securities were $64.2 billion as of 31 March 2021 up from $61.95 billion at 31 December 2020.
Facebook is effectively in a duopoly with Google for online advertising spend and as such should have significant room for further growth as traditional advertising spend continues to come under pressure to the ongoing online migration that is occurring globally. Given Facebook’s potential growth coupled with what feel to be a reasonable valuation, we continue to hold the stock in the Cratos BCI Worldwide Flexible Fund as well as Cratos Global Portfolios as well. Facebook is however not without its risks; the biggest in our view is the heavy scrutiny the company is facing from US and global lawmakers for information mismanagement and privacy incidents.