Facebook (FB +1.33%) reported another quarter of strong growth. But the growth was down from previous quarters. That was the case not just for revenue, but also for net income, earnings per share, and user metrics. In addition, Facebook saw its daily and monthly active users decline sequentially in Europe, and management guided for a further slowdown in revenue growth in the quarters ahead.
Here are the key takeaways from Facebook's second quarter.
Image source: Facebook.
Facebook's second-quarter results: The raw numbers
|
Metric |
Q2 2018 |
Q2 2017 |
Year-Over-Year Growth |
|---|---|---|---|
|
Revenue |
$13.2 billion |
$9.3 billion |
42% |
|
Operating margin |
44% |
47% |
N/A |
|
EPS |
$1.74 |
$1.32 |
32% |
Data source: Facebook second-quarter earnings release.
As expected, Facebook's operating expenses jumped sharply in Q2. Indeed, since Facebook's operating expenses increased 50% year over year while revenue rose a lesser 42%, the social network's operating margin came under pressure. Facebook's operating margin narrowed from 47% in the year-ago quarter to 44%. That meant Facebook's earnings per share increased at an even lower rate, rising 32% year over year.
Second-quarter highlights
- Facebook's 42% revenue growth was a deceleration from 49% growth in Q1.
- Earnings-per-share growth of 32% was well below a 63% increase in Q1.
- Facebook's operating expenses were $7.4 billion -- up 50% year over year and up 13% sequentially.
- Facebook's daily active users increased 11% year over year, lower than 13% growth in Q1.
- Monthly active users increased 11% year over year, below 13% growth for the metric in Q1.
- Daily and monthly active users in Europe fell from 282 million and 377 million in Q1 to 279 million and 376 million in Q2, respectively.
It's worth noting that management had warned in its first-quarter earnings call that its user metrics in Europe would face headwinds during the period as a result of the enactment of the General Data Protection Regulation (GDPR) in the European Union. Specifically, management had predicted the GDPR roll-out would lead to "flat to slightly down" sequential growth for European monthly and daily active users.
In addition, management had guided for full-year operating expenses to rise 50% to 60% during 2018 as management invests heavily in safety and security, content, and long-term growth initiatives.
Looking ahead
Facebook expects narratives of slowing growth and rapidly rising spending to continue.
Citing expected currency headwinds in the second half of the year, efforts "to grow and promote certain engaging experiences like Stories that currently have lower levels of monetization," and enhanced data privacy choices for users, Facebook CFO David Wehner said he expects growth to continue to slow.
"Our total revenue growth rates will continue to decelerate in the second half of 2018," Wehner explained during the company's first-quarter earnings call, "and we expect our revenue growth rates to decline by high-single-digit percentages from prior quarters sequentially in both Q3 and Q4."
In addition, management maintained its guidance for total expenses in 2018 to rise 50% to 60%.
Wehner also provided a rare update on Facebook's longer-term financial outlook, saying the company expects operating expense growth to exceed revenue growth in 2019, leading to operating margin metrics that trend "toward the mid-30s on a percentage basis."
