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Facebook: Ride It Higher

Feb. 04, 2019 2:00 PM ETMeta Platforms, Inc. (META)12 Comments
Gary Alexander profile picture
Gary Alexander


  • Shares of Facebook zoomed upward after reporting huge beats to top and bottom-line estimates in Q4.
  • User growth also remained constant at 9% y/y (roughly flat to last quarter), defying fears that Facebook's numerous scandals would affect its user retention.
  • Global ARPU also hit an all-time high of $7.37, helping to drive 30% y/y revenue growth.
  • Facebook is heading into a year of massive investments into content and security, but Wall Street is still expecting robust EPS performance in the coming year.

After a long period of sitting in penalty-box territory, shares of Facebook (FB) are sizzling again. Expectations were so muted for a company embroiled in a number of difficult scandals last year that investors were probably willing to accept in-line results in Q4 - instead, Facebook delivered a resounding beat on both revenues and EPS, sending shares up double digits. In my view, Facebook is in for a long recovery rally ahead.

ChartData by YCharts

I wrote in a prior article that many of investors' largest fears on Facebook are overplayed. Facebook was one of few stocks to end 2018 with a negative double-digit performance, primarily out of the fear that cries of "Delete Facebook" that have plastered the media would eventually eat into Facebook's user base. In Q4, Facebook proved these rumors wrong: while the company's MAUs and DAUs continued to grow in the high single digits as they did over the past several quarters, Facebook is still far from bleeding active users.

2019 will be a year of heavy investment for Facebook. The company is planning to invest billions of dollars into content policing (to fight the "fake news" label) and address privacy/security concerns, while taking greater measures to unify and integrate its core platforms across Instagram, WhatsApp, and Facebook Messenger. Capex spending has already begun to trickle upward in the back half of 2018, cutting into Facebook's considerable free cash flow generation.

These investments, however, are no reason to back off a bullish position in Facebook. Operating margins and free cash flow may soften in 2019, but once these investments become embedded into Facebook's operating structure, it can return back to margin growth. It's worth noting as well that despite the well-publicized intention for greater capex and operating costs in 2019, Wall Street analysts are still predicting flattish EPS for FY19 (per

This article was written by

Gary Alexander profile picture
With combined experience of covering technology companies on Wall Street and working in Silicon Valley, and serving as an outside adviser to several seed-round startups, Gary Alexander has exposure to many of the themes shaping the industry today. He has been a regular contributor on Seeking Alpha since 2017. He has been quoted in many web publications and his articles are syndicated to company pages in popular trading apps like Robinhood.

Analyst’s Disclosure: I am/we are long FB. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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