July 24, 2019

Earnings Roundup: Will F.A.N.G. Ad Revenue Continue to Grow?

by David Aurelio.

Netflix shows that it’s not enough to beat earnings. The media giant beat 19Q2 earnings with an EPS of $0.60 vs. the $0.56 per share estimate; however, failed to deliver on a key performance indicator. Net subscriber additions for the quarter of 2,699 million missed expectations by 47.2%. As a result, Netflix shares have fallen 16%. Now that the stage has been set, investors eagerly await the fate of the remaining members of F.A.N.G., Facebook Inc (FB.O), Amazon.com Inc (AMZN.O), and Alphabet Inc (GOOGL.O, GOOG.O), which start to report this afternoon with Facebook.

Exhibit 1: F.A.N.G. YoY Growth Rates

Analysts expect F.A.N.G. to see 19Q2 ad revenue, a key performance indicator, to increase 18.7% YoY. Facebook is expected to see the largest increase in ad revenue, gaining 25.1% to $16,315 million. Monthly average users, for the social media company are expected to increase 8.1% from the prior year to 2,411 million. YoY earnings for the group are expected to increase 48.3%. However, it is worth noting that this is heavily driven by Alphabet’s easy comp.’s due to a $5 billion EU fine in 18Q2. As a result, Google’s parent company is expected to see YoY earnings increase 149.3%. If Alphabet is excluded, YoY earnings for F.A.N.G. become 6.5%. The impact is large enough that it impacts the entire S&P 500. The growth rate for the index changes from 1.1% to a decline of 0.2% when Alphabet is excluded.

Exhibit 2: Ad Revenue to Total Revenue

Looking outward analysts expect to see ad revenue become a smaller portion of total revenue for Alphabet and to make up a larger portions of Amazon’s sales.

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