As I write this, shares of Facebook Inc. (FB) are trending slightly lower after hours. The catalyst was the social media network’s stunning first-quarter results, which blew analysts’ estimates out of the water. Why did the stock fall on such strong results, and is there further upside potential from here? Let’s find out by looking at the numbers.
The company ended the first quarter with about 1.3 billion daily active users, an 18% increase over a year ago. Monthly active users also jumped 17% year-over-year to 1.9 billion.
Compared with Q1 2016, revenue rose 49% to $8.03 billion. Analysts were expecting $7.83 billion in revenue, so Facebook posted a 2.6% sales surprise. Over the same period, net income jumped 76% to $3.06 billion, or $1.04 per share. This beat the $0.87 consensus earnings estimate by a whopping 19.5%.
Now, some financial sites are reporting that Facebook missed the consensus earnings estimate of $1.12 per share. That actually isn’t quite true, because the $1.12 estimate is for non-GAAP, or adjusted, earnings per share. Facebook announced that it is no longer reporting adjusted earnings per share. So, the true apples-to-apples comparison is the GAAP earnings estimate of $0.87 per share. It appears that confusion over whether Facebook beat or missed earnings may be weighing on the stock right now.
The good news is that FB still has plenty of upside potential. For FY 2017, the company is expected to grow sales by 37.3%, and earnings by 28.6%. All the while, analysts keep revising their estimates higher, so Facebook will likely do even better this year.
Keeping all of this in mind, I consider FB a B-rated Buy.