What Investors Should Know about Facebook's Outlook

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Part 2
What Investors Should Know about Facebook's Outlook PART 2 OF 15

How Facebook’s Bottom Line Is Trending

Facebook’s profit surges 71%

As Facebook (FB) steps up its investment in new products and new markets to drive revenue growth, investors are closely watching its bottom line. The bottom line trend can offer insight into the company’s ability to continue investing in growth without having to burden itself with debt.

In 2Q17, Facebook’s net profit spiked 71% to $3.9 billion, which placed Facebook ahead of Alphabet’s (GOOGL) Google in terms of 2Q17 profitability. Google, licking a $2.7 billion wound arising from a European Union (EZU) fine, reported a net profit of $3.5 billion in 2Q17. Without the fine, though, Google’s net profit was $6.3 billion.

How Facebook’s Bottom Line Is Trending

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Battle for online ad dollars

Facebook and Google are fierce competitors in the digital advertising industry. They are also the largest players in the sector, earning themselves a distinction of a duopoly. But emerging rivals Snap (SNAP), Amazon (AMZN), and Verizon (VZ) are trying to cut the influence of Facebook and Google as Internet advertising powerhouses.

Strong ad pricing underline profit growth

Facebook’s profit rose 186% in 2Q16 and 76% in 1Q17. As a result of the profit growth in the latest quarter, Facebook ended up with EPS (earnings per share) of $1.32, up from $0.78 a year ago, implying 69% growth.

The bottom-line improvement in the latest quarter was driven by an increase in Facebook’s ad demand and pricing. The company said its average ad price rose 24% in 2Q17. The number of ad impressions jumped 19%.

The above chart shows Facebook’s quarterly EPS trend line.


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