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bonkers Newbie

bonkers

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FB's business is still here, let's leave that aside for now. However, I still want to get back to my original question on guidance.

 

It's a temporary blip...they are saying that higher security spending will decrease net margins...revenues will still be growing quite rapidly.  Within two years, margins will rebound as they probably won't be spending as much on security upgrades.  Of the FAANG stocks, Apple and Facebook are the only ones trading at a reasonable price.  Cheers!

AGREED!

I think sooner or later, the security will be automated for the most part. A large part of their AI drive may go in this direction, It’s a few billion dollar of annual expenses and I am fairly sure, that AI sooner or later can do this better and faster than any human can.

 

I would appreciate your opinion about the following statements:

 

CFO David M. Wehner:

"We continue to expect that full-year 2018 total expenses will grow [faster than revenue] in the range of 50% to 60% compared to last year. In addition to increases in core product development and infrastructure, this growth is driven by increasing investment in areas like safety and security, AR/VR, marketing, and content acquisition. Looking beyond 2018, we anticipate that total expense growth will exceed revenue growth in 2019."

 

"Over the next several years, we would anticipate that our operating margins will trend towards the mid-30s on a percentage basis."

 

Are you saying:

  a) you know better than he does (recruiting needs, development of AI, etc.)

  b) he is just being conservative - in the extreme

  c) he is lying for some reason ?

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Guest Schwab711

Guest Schwab711

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I think what he is saying is incremental operating margins will be ~35%. I think they wanted to avoid being overly specific and the market took it to mean overall operating margins will be 35% in 2020 or so. That may be true and that's what I'm preparing for, but I read it as incremental operating margins of 35% will drag overall margins down steadily. If the latter is the case then overall margins will be meaningfully higher than 35% in 2020 (pending your revenue growth assumptions).

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mcliu Newbie

mcliu

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I think what he is saying is incremental operating margins will be ~35%. I think they wanted to avoid being overly specific and the market took it to mean overall operating margins will be 35% in 2020 or so. That may be true and that's what I'm preparing for, but I read it as incremental operating margins of 35% will drag overall margins down steadily. If the latter is the case then overall margins will be meaningfully higher than 35% in 2020 (pending your revenue growth assumptions).

 

It actually sounds like he's referring to overall margins, because he's saying expenses will be growing by 50% in 2018 and also growing faster than revenue in 2019.

Anyone else have a take on this?

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atbed Newbie

atbed

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I think what he is saying is incremental operating margins will be ~35%. I think they wanted to avoid being overly specific and the market took it to mean overall operating margins will be 35% in 2020 or so. That may be true and that's what I'm preparing for, but I read it as incremental operating margins of 35% will drag overall margins down steadily. If the latter is the case then overall margins will be meaningfully higher than 35% in 2020 (pending your revenue growth assumptions).

 

It actually sounds like he's referring to overall margins, because he's saying expenses will be growing by 50% in 2018 and also growing faster than revenue in 2019.

Anyone else have a take on this?

 

I would think they cleared up these concerns in post-earnings follow-up calls, and believe they meant 35% overall, but what do I know.

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Guest Schwab711

Guest Schwab711

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I think what he is saying is incremental operating margins will be ~35%. I think they wanted to avoid being overly specific and the market took it to mean overall operating margins will be 35% in 2020 or so. That may be true and that's what I'm preparing for, but I read it as incremental operating margins of 35% will drag overall margins down steadily. If the latter is the case then overall margins will be meaningfully higher than 35% in 2020 (pending your revenue growth assumptions).

 

It actually sounds like he's referring to overall margins, because he's saying expenses will be growing by 50% in 2018 and also growing faster than revenue in 2019.

Anyone else have a take on this?

 

I would think they cleared up these concerns in post-earnings follow-up calls, and believe they meant 35% overall, but what do I know.

 

This is true, it is 35% overall in 2020. I think much of the increase expense is due to FB's expected large emerging market CapEx push due and changes in the new tax law related to R&D/CapEx. I've heard an interesting view on FB's planned investment in India over the next 2.5 years that likely reflects what FB is trying to do (faster page load times leads to higher engagement is the idea here) that I think makes a lot of sense. The new tax code makes it more attractive to pull-forward investments in data centers and such. I think FB is going to look quite attractive in 2020, though the digital ad market may not be the high-growth market at that point that it is right now.

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Liberty Newbie

Liberty

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It's my impression too that they pulled forward a lot of future investments because it was politically convenient to take a bath now and re-set expectations.

 

If the stock is getting crushed, margins are going down, and they're investing so much in security that it's hurting, it feels like the company has been punished and is doing all that they can.

 

If margins are going up Q after Q, profits go up even faster, etc, then it attracts the political spotlight and it doesn't feel like they're doing enough (even if they're so profitable that they could've increased security a lot and not crushed margins this much with all this extra capex).

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walkie518 Newbie

walkie518

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It's my impression too that they pulled forward a lot of future investments because it was politically convenient to take a bath now and re-set expectations.

 

If the stock is getting crushed, margins are going down, and they're investing so much in security that it's hurting, it feels like the company has been punished and is doing all that they can.

 

If margins are going up Q after Q, profits go up even faster, etc, then it attracts the political spotlight and it doesn't feel like they're doing enough (even if they're so profitable that they could've increased security a lot and not crushed margins this much with all this extra capex).

 

Maybe that's reading into it too much?  Facebook made a number of deals and not all of them were or will become Instagram. 

 

Share is being taken by Amazon and likely Google while Facebook moves from one scandal to another. 

 

And Sandberg keeps selling stock.  Maybe this is her window and she is restricted other times ... I would imagine that a key executive, who knows and understands the company, wouldn't sell at these prices if it's a reset? 

 

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frommi Newbie

frommi

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Yet another large datacenter to be built here in Denmark by Facebook, this time near Esbjerg [Western Denmark, near the coast at the North Sea]. This is an important project for the region and community there.

 

What i don`t get is why they do that at all. Whats the ROI on these datacenters? Can`t they simply pay a REIT doing this stuff and return the cash to shareholders?

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John Hjorth Newbie

John Hjorth

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What i don`t get is why they do that at all. Whats the ROI on these datacenters? Can`t they simply pay a REIT doing this stuff and return the cash to shareholders?

 

I speculate that might eventually happen. Perhaps this way of doing it is about being in total control of the design and construction process [,after which to flip it, and lease it back]?

 

Recently, Mr. Flatt has in interviews expressed his regrets about not getting involved in this space so far. Personally I would not be surprised to see Brookfield [or some competitor] step in here at a later moment with investment in these datacenters, if Brookfield, as the first Danish investment by Brookfield ever.

 

As a sidenote, Google is also building a datacenter here in Denmark, in Fredericia, on the east coast of Jutland, where Esbjerg is on the west coast.

 

I have read somewhere, that a high capacity extention to the internet backbone is being planned [perhaps already under construction?] going out from exactly Esbjerg to hit the US east coast [i don't recall where], so I think the location of those datacenters here is actually closely related to that fact.

 

Those two FANGs are really pouring millions into tiny Denmark, generating economic activity, not only during the construction time span, but also long term steady jobs going forward for skilled people. - It's great!

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Guest Schwab711

Guest Schwab711

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Yet another large datacenter to be built here in Denmark by Facebook, this time near Esbjerg [Western Denmark, near the coast at the North Sea]. This is an important project for the region and community there.

 

What i don`t get is why they do that at all. Whats the ROI on these datacenters? Can`t they simply pay a REIT doing this stuff and return the cash to shareholders?

 

Faster load times lead to higher engagement. FB is getting tax incentives to increase their network, which should increase ARPU. It expands the "moat" (if it's easier to use the word) and it's probably going to be pretty high ROIIC. We'll have to watch ARPU over the years.

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Spekulatius Newbie

Spekulatius

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I suspect that John hit the nail on the head and FB ( and GOOG ) want to keep control of the design and hence likes to do own what they use.  They can at some point decide to spin this business off, but right now, they have a ton of cash and are not capital constraint, so i think it is the right decision. AMZN is capital constraints and they have been leasing warehouses and data centers,which makes sense for them.

 

FB is currently investing a lot in Capex, especially Asia, where the market is still in its infancy (per ARPU metrics), but thrthat nwany to first mover advantage andnthe best user experience.

 

I have personally noticed a lot more activity in FB marketplace (with craigslist still being the lead) and video.

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