3 Must-See Metrics Behind Facebook’s Staggering Q2 Growth

Following a string of very strong reports from companies in the digital advertising space in the days leading to Facebook‘s (NASDAQ:FB) earnings release, expectations were high going into the important update on Wednesday afternoon. The social network delivered.

Here’s a look at some of the must-see takeaways from the quarter, providing investors a glimpse into the tech company’s impressive growth.

Facebook CEO Mark Zuckerberg discusses the company's 10-year roadmap at F8 2018.

Facebook CEO Mark Zuckerberg. Image source: Facebook.

1. Revenue growth accelerated

After blowing away expectations in Q1 when Facebook reported revenue growth of 48% year over year, management guided for growth to be the same or better in Q2. The company’s 56% year-over-year revenue growth in Q2, therefore, easily lived up to this guidance. This put total revenue for the period at $29.1 billion  — well ahead of a consensus analyst estimate for $27.9 billion. 

Revenue growth, Facebook management said, was driven primarily by a 47% year-over-year increase in the average price per ad and a 6% increase in the number of ads delivered across its platforms.

A weak year-ago quarter, when ad spend took a hit during the beginning of the COVID-19 pandemic, aided these growth rates — particularly Facebook’s uncanny increase in price per ad.

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2. Net income soared

Highlighting the powerful operating leverage in Facebook’s business, net income more than doubled year over year, increasing from $5.2 billion to $10.4 billion. Profitability, of course, was helped both by the company’s strong top-line growth and an expanding operating margin. Its operating margin swelled from 32% in the second quarter of 2020 to 43%.

All of this translated to earnings per share of $3.61, crushing analysts’ average forecast for $3.03.

3. Users grew, despite a tough comparison

Every user metric Facebook tracks demonstrated meaningful growth, despite a tough year-ago comparison in which user growth spiked as consumers were sheltering at home. Daily active users on the company’s core Facebook platform, for instance, increased 7% year over year to 1.91 billion. Further, combined unique daily active users across all of the company’s social networks grew 12% year over year to 2.76 billion.

Despite Facebook’s impressive second-quarter revenue, net income, and user growth, the tech stock was trading lower in after-hours trading following the company’s earnings release. This market reaction to the report may have been due to management’s warnings about decelerating growth to come.

“In the third and fourth quarters of 2021, we expect year-over-year total revenue growth rates to decelerate significantly on a sequential basis as we lap periods of increasingly strong growth,” management said.

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The comps do, indeed, get tougher in Q3 and Q4. Following 11% year-over-year growth in 2020, Facebook’s revenue growth rates accelerated to 28% and 36% in the third and fourth quarters of last year, respectively.

But it’s arguable that the Street is overreacting. Management had already said it expected substantially slower growth in the second half of 2021. Further, a deceleration makes sense intuitively in light of the comparisons Facebook will be lapping.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

View more information: https://www.fool.com/investing/2021/07/29/3-must-see-metrics-behind-facebooks-staggering-q2/

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