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Why Facebook's Stock Climbed 11.7% in July

By Royston Yang – Aug 5, 2020 at 8:20AM

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The social media giant reported a stellar set of numbers in its latest earnings report and is preparing to reel in a larger audience.

What happened

Shares of Facebook (META -2.36%) climbed 11.7% in July, according to data provided by S&P Global Market Intelligence.

The social media giant's shares bounced back strongly even as the company continues to negotiate with advertisers on a widespread boycott campaign over hate speech and misinformation.

Person using social media on mobile phone while laptop is open

Image source: Getty Images.

So what

Facebook reported a strong set of results for its second-quarter earnings report, proving that it can continue to grow despite the odds. Advertising revenue climbed 10% year over year to hit $18.3 billion, while total expenses only rose 4% year over year. The result was a jump of 29% year over year in operating income, and the company's operating margin improved from 27% to 32%, though it was still a tad below the first quarter's operating margin of 33%. 

Net income doubled from $2.6 billion a year ago to $5.2 billion as Facebook booked a lower tax expense for the quarter. Daily and monthly active user numbers continued to climb, increasing by 12.5% and 12% year over year, respectively. Facebook also introduced two new metrics: family daily active people (DAP) and family monthly active people (MAP), defined as a person who logged into any one of Facebook's family of products (i.e. Facebook, Instagram, Messenger and/or WhatsApp) on a given day.

Both DAP and MAP also showed healthy year-over-year increases of 15.4% and 13.8%, respectively. What these numbers mean is that the company continues to add new users and broaden its reach around the world, strengthening its network effect which can, over time, draw in more advertising dollars.

Now what

Facebook is preparing to launch Instagram Reels in the U.S., a clone of the popular short-form video-sharing site TikTok. Reels is a new format for Instagram Stories that allows users to create and share short-form video content and is already being tested in India, Brazil, France, and Germany.

It's unclear if Reels can give TikTok a run for its money, but Facebook is willing to throw its weight behind it as short-form videos go viral and attract hordes of youth. If the social media behemoth wants to touch base with the younger crowd, Reels is probably its best bet for now.

Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. Royston Yang owns shares of Facebook. The Motley Fool owns shares of and recommends Facebook. The Motley Fool has a disclosure policy.

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