Wedbush expects Facebook Inc (NASDAQ:FB) to continue its rapid growth overseas and to increase monetization of under-penetrated Instagram, WhatsApp, and Messenger over the coming years. Wedbush views Facebook as well-positioned to defend itself from competition for user mindshare and attention from other apps, as its initiatives around the camera and augmented reality can leverage its massive user base and suite of applications to streamline adoption and drive higher engagement.
Q2:17 revenue was $9,321 million, compared with Wedbush estimates of $9,224 million, and the consensus estimate of $9,205 million. Revenue upside was driven by mobile advertising strength, which more than offset lower-than-expected desktop and payment revenue. Ad revenue was up by 43% or more in every geography. GAAP EPS was $1.32, compared with Wedbush GAAP estimate of $1.15, and the consensus GAAP estimate of $1.13. The EPS upside was driven by the top-line beat, a better-than-expected gross margin, operating expense cost control relative to Wedbush estimates, and a lower-than-expected tax rate. Operating expenses including cost of revenue as a percentage of revenue were 40%, versus 44% last quarter and 43% in Q2:16, reflecting R&D growth associated with higher headcount and the buildout of new products. Mobile advertising revenue comprised about 87% of the $9,164 million in total advertising revenue, reflecting y-o-y mobile ad growth of roughly $2.9 billion.
Operating expense growth including cost of revenue was up 33% y-o-y and 36% year-to-date, well below prior guidance of up 40 – 50% for the year. The company now expects opex growth of 40 – 45% for 2017; Wedbush has modeled growth of 39% this year and of 36% in 2018. Wedbush is raising estimates for 2017 and 2018 to reflect rapid DAU growth outside the U.S. and improving ARPU globally. Wedbush now expects 2017 revenue and EPS of $40.0 billion and $5.65, up from $38.8 billion and $5.14 previously; Wedbush expects 2018 revenue and EPS of $53.1 billion and $7.10, up from $48.8 billion and $6.24 previously.