Tech Stocks Update: Apple and Facebook

Facebook started 2017 on a positive note with revenue ahead of expectations, while Apple reported solid fiscal second-quarter results

Morningstar Equity Analysts 4 May, 2017 | 12:15PM

Facebook (FB)

Wide-moat Facebook started 2017 on a positive note with first-quarter revenue and operating income coming in ahead of expectations. While we are beginning to see deceleration in ad revenue growth, Facebook’s growing monthly average users continue to indicate the strengthening of Facebook’s network effect, which reaffirms the firm’s leadership in the social networking and online ad markets. Although the first-quarter operating margin exceeded expectations, management reiterated that the firm’s expense growth is likely to outpace revenue growth this year. We made only minor adjustments to our estimates and are maintaining our $135 fair value estimate for Facebook.

Growth in Facebook’s users continued to attract advertising dollars and generated ad revenue of $7.9 billion during the quarter, up 51% from the prior year. While Facebook is lowering ad inventory on its own properties later this year, for the time being, demand has remained strong, which has pushed up ad prices, as indicated by the 28% year-over-year increase in average revenue per user.

In addition, the firm has successfully added Snapchat-like features, such as Stories, to Instagram, driving the app’s users and user monetization higher. Overall, with more users and user engagement, Facebook continues to not only strengthen its network, but also possibly the value of its intangible assets stemming from user data.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Apple Inc108.86 USD-5.60
Facebook Inc A263.11 USD-6.31

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Morningstar Equity Analysts  Morningstar stock and fund analysts cover 2,000 mutual funds, 2,100 equities, and 300 exchange-traded funds.

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