Facebook Is Eating Google's LunchFB) reported its quarterly earnings yesterday easing past the EPS consensus and beating the estimates on revenue as well. With the likes of Microsoft (MSFT), Apple (AAPL), Alphabet (GOOG), Visa (V), and Netflix (NFLX) all reporting terrible earnings, Facebook curbed the entire tech meltdown by reporting better than expected numbers.
Facebook’s Q1 EPS came in at $0.77, beating the analysts’ estimate of $0.62 with ease.
Despite the small revenue beat, Facebook’s earnings improved massively, which highlights the company’s growing earnings power. While Google witnessed seasonal weakness in its advertising business, Facebook powered through the earnings season with ease. This points towards the fact that Facebook is eating Google’s lunch and with the company’s user growth still growing, investors can expect Facebook to continue snatching market share from Google.
Facebook’s Monthly Active Users stood at 1.65 billion for the quarter whereas WhatsApp touched the 1 billion MAU mark. Instagram’s user growth is also going strong as the app now has over 400 million MAUs. Given the scale of Facebook’s entire user base and its increasing dominance of both mobile display and desktop display inventory, it isn’t surprising that many people and businesses now prefer to advertise with it instead of Google.
Google losing market share to Facebook is inevitable and this was evident by the contrast in both the companies’ earnings. Facebook also offers many advertising advantages for businesses and is also cheaper. People get a lot more bang for their buck, which is why I think Facebook will continue eating Google’s lunch. Cheaper cost per click (CPC) and targeted audiences are a few reasons why advertising with Facebook makes a lot more sense. Although it is only beneficial when used for business to consumer marketing, the potential for it is huge and Facebook’s earnings should continue growing.
I expect Facebook to continue eating Google’s lunch due to the reasons mentioned above. However, due to Facebook’s rich valuation, I think investors should watch the stock from the sidelines and wait for a better entry-point. Although the company’s advertising revenue will keep growing, a lot of the good news is currently priced into the stock. Hence, I think investors should wait for the stock to dip.
Published on Apr 28, 2016By Ayush Singh