With A -16% Earnings Drop, Is Facebook, Inc.'s (NASDAQ:FB) A Concern?

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="After reading Facebook, Inc.'s (NasdaqGS:FB) most recent earnings announcement (31 December 2019), I found it useful to look back at how the company has performed in the past and compare this against the latest numbers. As a long-term investor I tend to focus on earnings trend, rather than a single number at one point in time. Also, comparing it against an industry benchmark to understand whether it outperformed, or is simply riding an industry wave, is a crucial aspect. Below is a brief commentary on my key takeaways.” data-reactid=”19″>After reading Facebook, Inc.’s (NasdaqGS:FB) most recent earnings announcement (31 December 2019), I found it useful to look back at how the company has performed in the past and compare this against the latest numbers. As a long-term investor I tend to focus on earnings trend, rather than a single number at one point in time. Also, comparing it against an industry benchmark to understand whether it outperformed, or is simply riding an industry wave, is a crucial aspect. Below is a brief commentary on my key takeaways.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content=" View our latest analysis for Facebook ” data-reactid=”20″>View our latest analysis for Facebook

Was FB’s recent earnings decline worse than the long-term trend and the industry?

FB’s trailing twelve-month earnings (from 31 December 2019) of US$18b has declined by -16% compared to the previous year.

Furthermore, this one-year growth rate has been lower than its average earnings growth rate over the past 5 years of 35%, indicating the rate at which FB is growing has slowed down. What could be happening here? Well, let’s take a look at what’s going on with margins and if the whole industry is facing the same headwind.

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In terms of returns from investment, Facebook has fallen short of achieving a 20% return on equity (ROE), recording 18% instead. However, its return on assets (ROA) of 13% exceeds the US Interactive Media and Services industry of 6.4%, indicating Facebook has used its assets more efficiently. And finally, its return on capital (ROC), which also accounts for Facebook’s debt level, has increased over the past 3 years from 20% to 20%.

What does this mean?

While past data is useful, it doesn’t tell the whole story. Companies that are profitable, but have volatile earnings, can have many factors impacting its business. I suggest you continue to research Facebook to get a more holistic view of the stock by looking at:

1. Future Outlook: What are well-informed industry analysts predicting for FB’s future growth? Take a look at our free research report of analyst consensus for FB’s outlook.
2. Financial Health: Are FB’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="NB: Figures in this article are calculated using data from the trailing twelve months from 31 December 2019. This may not be consistent with full year annual report figures.” data-reactid=”43″>NB: Figures in this article are calculated using data from the trailing twelve months from 31 December 2019. This may not be consistent with full year annual report figures.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="If you spot an error that warrants correction, please contact the editor at [email protected]. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.” data-reactid=”44″>If you spot an error that warrants correction, please contact the editor at [email protected]. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.