Question

Facebook is a profitable, rapid-growth media company. This presumably justifies the firm not paying a cash dividend. Go to www.finance.yahoo.com and enter “FB (Facebook)” in the “Quote Lookup” box. Click “Financials” and scroll down to “Income Statement.” Compute the following ratios for the most recent full year. a. Net income/Total revenue (aftertax profit margin) % b. Cost of revenue/Total revenue c. Growth in earnings per share d. Income tax expense/Net income Write a one-paragraph summary about Facebook’s ability to beat the analysts’ targets in step 1. Do not automatically assume the firm will be able to beat the target numbers because Facebook is in a highly competitive environment. Some years it will beat the target numbers and other years it will not.

the data is on the website

Answer 1

Extracted below data from Facebook 30th June 2019 ( Quarter record) and do KPI ( Key performance Indicator ) in Quarter wise ,  

	Facebook Inc
	Three Months Ended( June 30)
	2019-$ Mio	2018-$Mio
Revenue (a)	16,886	13,231
Cost and Expenses
Cost of revenue	3,307	2,214
Research & Development	3,315	2,523
Marketing and Sales	2,414	1,855
General & Admin	3,224	776
TotalCost and Expenses (b)	12,260	7,368
Income from Operation(a-b)=c	4,626	5,863
Interest & other income ( Net)	206	5
Income before Prov of Tax	4,832	5,868
Income Tax	2,216	762
Net Income -(d)	2,616	5,106
KPI
NET Income Margin%(d/a)	15%	39%
( net Income /Revenue)
Income from Operation Margin(c/a)	27%	44%
(Operation Income / Revenue)
Cost of revenue / revenue	20%	17%
Income Tax Expenses / Revenue	13%	6%
Earning Per share	0.92	1.76

On the above analysis we noticed that Facebooj showed good revenue growth in 30^th June 2019 as compared with 2018 But still they are not able to generate enough Operating margin . In this June ’19 Quarter , Facebook badly impacted by Additional $ 2 Billion legal expense relates to US Federal Trade commission ( FTC) settlement and $ 1.1 Billion income tax expenses due to the development in Altera Corp vs Commissioner .

Due to above factor , June Quarter 2019 , Operating Margin was down sharply . This is ONE off item , which impacted margin . After remove the above factor , Face book could have add 12% in their Operating Margin as well s improve EPS ( would be 1.08) and Income tax rate will be down by 30%.

We also notice that Face book is quite confided about future revenue growth . They disclose revenue on constant Currency way to avoid any abnormality in FX transaction .

As per above analysis , we noticed Cost of revenue % also slightly increased . They need to control this cost going forward – Need optimization of cost

But Settlement with FTC will continue in near future and it will going to impact both expenses and bottom line

They are quite confident about winning future project include Dynamic ads in Instagram Stories , improvement to video ads. Overall good optimization will help us to generate future growth

In long run they are thinking about Ecommerce. They are quite confident about continuous progress on Instragram shopping . These all will have a great impact in future

Also they want to highlight that Good engagement across face book app , People see as they scroll down in their feed on facebook as being contriobutor to Outperform on revenue

About future visibility , Facebook going to Invest in core product , innovation , safety , security , video and content , all of these will create major Positive Impact in future earnings and margin ( long run )