Facebook's Fear Factor Is Overblown -- Heard on the Street
By Laura Forman
Investors who could pry themselves away from Reddit on Wednesday
afternoon found Facebook much more soothing -- the company's
results, that is.
The social-media giant reported monster fourth-quarter results.
Total revenue grew by 33% year-over-year -- well above Wall
Street's estimate -- driven by advertising revenue growth of 31%.
Given easy comparables as a result of the pandemic, the company
said that it expects year-over-year growth rates to remain stable
or to accelerate modestly in the first half of 2021. They will
appear less flattering, however, in the second half of the year --
a time when the company says it also could face pressure from ad
targeting and regulatory headwinds.
Facebook has lagged behind the Nasdaq Composite Index and
social-media competitors Twitter, Snap Inc. and Pinterest over the
last year as such risks loomed. But the company should find
relative shelter in its diversity. Analysts are expecting daily
active users on the platform to continue to grow sequentially in
the first quarter, alleviating some investors' concerns of
attrition following the platform's January suspension of former
President Donald Trump. That makes sense: Analysts forecast the
U.S. and Canada will account for only about 10% of Facebook's daily
active users world-wide in the first quarter, according to Visible
Alpha. Advertisers should continue to find superior value in
Facebook's platform relative to competitors.
Investors also have worried for months now about the revenue
impact of Apple's impending iOS update, which will hamper
advertisers' ability to track users' data in order to market
themselves and monetize their ads on Facebook's platform. But
Morgan Stanley's Brian Nowak argues that Facebook's breadth and
differentiation will soften the blow. He estimates the iOS change
would amount to just a 1% to 3% revenue loss in 2021 for Facebook,
and he also notes that all platforms affected by Apple's update
will see their advertisers' return on investment take a hit.
Facebook, in other words, isn't alone. Yet another concern is
possible antitrust suits from regulators, but here Facebook also
has company, and such suits can take years to play out.
Meanwhile, the fundamentals look promising: Truist's Youssef
Squali says Facebook's more-than-8-million advertisers will help it
"absorb some of the shock from negative externalities" such as the
pandemic, future ad boycotts and regulatory and platform changes.
Wall Street is expecting Facebook to grow ad revenue at an average
pace of more than 29% year-over-year in the first and second
quarter, according to FactSet, leaving room for upside based on the
The biggest fear for Facebook investors right now is fear
(END) Dow Jones Newswires
January 27, 2021 19:55 ET (00:55 GMT)
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