Amazon reports impressive growth and continues to expand, while Facebook faces difficulties following the implementation of new regulations on personal data and the Cambridge Analytica scandal, according to an analysis by Tradeville.
Amazon reported a net profit of 92.2 percent for the second quarter of 2018 compared to the same period last year, exceeding the market’s expectations by over 100 percent. The company’s sales increased both in North America (30.46 percent) and internationally (21.40 percent), to solid regional growth, contributing to Whole Foods, a chain of stores dedicated to organic food, purchased by Amazon one year ago.
For the current quarter, Amazon estimates higher sales of USD 54-57.5 billion, which would represent an increase of 23-31 percent from one year to the next. To maintain growth, the company will have to continue expanding in non-US markets as well.
In the case of Facebook, although the company posted revenue of USD 13.23 billion, up 42 percent from the second quarter of 2017, the evolution was below market expectations. It was caused by a drop in the advertising revenue growth rate following the implementation of new regulations on personal data and the Cambridge Analytica scandal on data collection for 87 million users, which was used to influence voters’ intentions.
With about 53 percent of the 4.2 billion internet users of the planet using Facebook, the company has a quasi-monopoly in some regions of the world, and its growth potential remains very high.
The company reported a quarterly net profit of 92.2 percent as compared to Q2 2017, exceeding the market expectations with over 103 percent. Net sales totaled USD 52.89 billion, slightly below market expectations (USD 53.45 billion), but rising by 28.2 percent compared to the same period of the previous year.
The figures reported by Amazon.com include sales of Whole Foods, which recorded an increase of 39 percent compared to the same period of the previous year. The company recorded a 30.46 percent increase in net sales in North America vs. T2 2017 and a significant rise of 76.2 percent of operating revenues in this region. On the international segment, the company being in a process of expansion, continued to suffer a loss operating income, but declining compared to the previous year. On the AWS segment (Amazon Web Services), the company’s operating revenue grew by over 44 percent by T2 2017.
Facebook reported financial results beyond market expectations at the profit level, but below the estimates the market at the revenue level and one of the company’s main engines, the revenue growth rate from advertising.
Facebook recorded a revenue of USD 13.23 billion, up 42 percent from T2 2017, but below market expectations, driven by a decline in advertising revenue growth as a result of the implementation of new data regulations personal and scandal “Cambridge Analytica”. At COGS level, FB recorded an accelerated growth of 79 percent compared to the same period last year to USD 2.21 billion.
The company’s R & D spending increased by 31 percent to USD 2.5 billion, for IT-specific expenditures that highlight the company’s concern to create and develop new products. The company’s total expenses increased by 50 percent to USD 7.36 billion, resulting in an operating profit of USD 5.68 billion, up 33 percent from the result recorded in Q2 2017. Also, the company’s operating margin has second consecutive quarter of decline. Compared to Q2 2017, the operating margin fell by about 3 percentage points to 44 percent.
Facebook reported a quarterly net profit of USD 5.1 billion, equivalent to an adjusted EPS of USD 1.74 / share over expected markets (USD 1.71 / share). Although the figures reported by Facebook do not seem so disastrous, FB shares fell by over 23 percent in after hours.
In Q2 2018, the company registered 30,275 employees, up 47 percent from T2 2017. Staff costs can put pressure on the operating margin, new jobs were made after the Cambridge Analytica scandal, the company creating new data protection departments persons.
One of the company’s main engines, on which the revenue generation process depends, is the number of users and the intensity of using the Facebook group platforms. If in the past FB has generous growth rates at the level of users, the company has now reached a maturity stage in which the process of attracting new users becomes more and more complicated.
In Q2 2018, FB posted a daily active number of 1.47 billion, up 11 percent from the same period of the previous year, but below the market expectations of 1.49 billion, driven by scandals that the company passed on personal data, implementation of GDPR in Europe but not in the last cycle company development.
In the past five quarters, US and Canadian users have fluctuated around 185 million, highlighting a possible saturation in North America and growing potential in other markets.
In terms of the number of active monthly users, it grew by 11.4 percent compared to T2 2017, to 2.23 billion. Given that approximately 4.2 billion people have access to the Internet, we can say that about 53 percent of the population that has the same the internet uses Facebook platforms.
In terms of average revenue per user, both in North America and Europe it was below the value recorded in Q4 2017. However, Facebook remains the largest socialization platform with a quasi-monopoly in some regions of the world. Even if growth rates will drop, Facebook has the ability to attract new users and increase revenue as 25 percent of the amounts spent on ads globally are shared between Facebook and Google.
Also, Google and Facebook continue to dominate the online advertising market, holding over 60 percent of the market. Revenue from phone advertising accounted for about 91 percent of total advertising revenues recorded in Q2 2018, up 87 percent over the same period of the previous year.
Facebook’s Instagram social media platform shows impressive growth rates at the end of July 2018, registering 1 billion users, becoming one of the pillars of Facebook’s growth.
Estimates provided by the company’s management
Facebook estimates that revenue growth will follow an upward trend, a 34 percent increase in Q3 2018 and a 26 percent increase in Q4 2018. It also estimates that spending growth will remain between 50 percent and 60 percent for 2018, and in 2019 the spending growth rate will be more in line with revenue. Then operating margin will be of around 35 percent over the next few years;
Compared to Q2 2017, investment spending for the acquisition of technology equipment increased by 139 percent to USD 3.5 billion. According to the company’s management, spending is estimated for 2018 capital of USD 15 billion, targeting investments in data centers, servers, network infrastructure and office space.