Facebook Q3 2021 Earnings Report Recap

^{Source: Predictions based on analysts' consensus from Visible Alpha}

Facebook (FB) Financial Results: Analysis

Facebook, Inc. (FB) reported mixed Q3 FY 2021 earnings results on Oct. 25. Earnings per share (EPS) beat consensus estimates, up 18.8% from the year-ago quarter's EPS. Revenue missed analyst forecasts, increasing 35.1% year over year (YOY). The platform's monthly active users (MAUs) just matched expectations. Facebook's shares rose as much as 9% in after-hours trading. Over the past year, Facebook's shares have provided a total return of 18.7%, below the S&P 500's total return of 34.3%.

FB Monthly Active Users

Facebook's MAUs rose 6% compared to the year-ago quarter to reach just over 2.9 billion. MAUs are a key metric Facebook uses to gauge the size of its global active user base. Facebook defines MAUs as registered and logged-in users who visited Facebook through its website or a mobile device, or used its Messenger app, sometime during the 30 days of the measurement period.

The company derives nearly all of its revenue through selling advertising space, based largely on the strength of MAUs, on its social media sites and apps. The bigger its user base, the more attractive its platform is to advertisers. A bigger user base also makes it easier to attract new users, as people want to be on Facebook because their friends are on it—a classic example of the network effect.

New Facebook Reality Labs Segment

Facebook announced that it would start to break out separate financial results for its new Facebook Reality Labs (FRL) segment starting in Q4 FY 2021. This segment will be focused on the company's augmented and virtual reality products and services. Facebook's other main operating segment will be named Family of Apps, which will include the Facebook social media platform, Instagram, Messenger, WhatsApp, and other services.

Facebook is investing increasing amounts of resources in building what CEO Mark Zuckerberg calls the "metaverse"—an expansive virtual world that will be a successor to the mobile internet and fuel a new wave of technology investment. Facebook plans to create as many as 10,000 jobs in the European Union over the next five years to build the metaverse. The company is also allegedly considering a name change to go along with this refocus on building the metaverse.

FB Whistleblowers

Facebook's social media platform has been getting a lot of negative attention lately after former Facebook employee Frances Haugen came out with extensive internal documentation that she claims supports her allegations that there are significant flaws with the giant social network. She testified before Congress earlier this month, arguing that the platform's flaws are detrimental to the safety of children and democracy.

Another whistleblower has also since come out and submitted an affidavit containing allegations about Facebook's behavior, and Sophie Zhang, a previous whistleblower, has become vocal against the company again. Facebook's conference call with analysts will be CEO Zuckerberg's first time speaking publicly since Haugen began releasing documents.

FB Share Repurchases

Facebook announced in its Q3 FY 2021 earnings report that it is increasing its share repurchases by $50 billion. The company repurchased $14.4 billion of its Class A common stock during the third quarter.

Facebook Earnings Call Recap

During the company's conference call, Zuckerberg aggressively defended the company against recent criticism and leaked documents related to how its services affect users. “Good faith criticism helps us get better,” Zuckerberg said. “But my view is that what we are seeing is a coordinated effort to selectively use leaked documents to paint a false picture of our company.”

Zuckerberg also discussed Facebook’s increasing competition for young adult users from Apple’s iMessage app and ByteDance Ltd.’s TikTok, saying that keeping and adding users in this demographic group is key to Facebook's future success. “We are retooling our teams to make serving young adults their North Star, rather than optimizing for the larger number of older people,” he said.

The company expects revenue for Q4 FY 2021 to be between $31.5 billion and $34 billion, which reflects uncertainty from changes to Apple Inc.'s (AAPL) iOS 14 as well as macroeconomic and COVID-19-related factors. Facebook's next earnings report (for Q4 FY 2021) is estimated to be released on Jan. 25, 2022.