Friday, July 27, 2012

FB, CSTR, and more ...

We must apologize for not posting the numbers of and our thoughts regarding Facebook's (FB) Q2 earnings.  We were travelling all day on Thursday.

Facebook (FB)

FB reported Q2 results with revenues beating the consensus while EPS were inline. The stock is down over 10% in AH.
  • Revenues of $1.18bil versus our estimate of $1.13bil and the Street's $1.15bil.
  • EPS of $0.12 inline with the Street, and above our $0.10 estimate.
  • The Company's MAU count of 955MM was much lower than our 977.5MM, but revenues still beat expectations due to higher advertising revenues. ARPU of $1.28 was significantly above our $1.21 projection, but was up only 1.5% Y/Y. That figure was up 5.7% sequentially.
  • Total advertising revenues of $992MM were above our $945.3MM estimate. Payments & services revenues of $192 also beat our $186.7MM projection.
  • Indications of a slowdown in revenue growth were apparent, although not as much as we had initially anticipated. Total revenues were up 32%+ Y/Y, but much lower than last quarter's 44%+ growth. We had projected a 27% growth.
  • Mobile users grew 67% Y/Y, but FB doesn't have enough revenue growth accommodating such a jump.
  • In addition, while it appears that topline growth is decelerating, the Company is increasing headcount and spending significantly more on sales& marketing. Whether these investments will generate enough returns to support the current 60+ P/E multiple and nearly a 3 PEG based on our FY '13 net income estimate, remains to be seen.
We will update our model and, if necessary, provide a new valuation for FB within the next couple of days. We note that in extended trading on Thursday, FB declined 10.7% to $23.97/sh and is approaching our $23/sh valuation. We will see how the stock will trade today.

Coinstar (CSTR)

CSTR reported mixed results with EPS beating estimates, but accompanied with a significant miss on the topline.  Revenues of $532.2MM were much less than the $545.7MM consensus.  We touched on this earlier this week as we noted that the ‘good news’regarding Reed Hastings’ (CEO of NFLX) post on FB about much higher streamingin June (which we also referred to as not good news given NFLX’s revenue andsubscriber model) was a negative for CSTR because as the unusually warm weatherkept many indoors (based on our own assumption), it may have also loweredtraffic to many Redbox kiosks for that month.  In fact, even though the Company increased its fee by 20% late last year, same store sales growth of 16.5% was 10bps lower than last year’s Q2.  Of course, lack of enough titles and tight inventory management of Time Warner movies, also contributed to the not so impressive growth.  In addition, same store sales growth of CSTR’s coin machines was pretty much non-existent and 160bps lower than last year.

The Company’s guidance may also have disappointed the Street.  While Q3 EPS guidance was above the latest consensus, the revenue guidance put the current Street estimate of $566MM at the top end of the guidance range.  CSTR was down 13%+ in AH.

Lastly, release of the initial Q2 GDP growth rate and University of Michigan’s July consumer confidence reading later this morning will likely impact the overall market including FB and CSTR. Our initial Q2 GDP annualized growth estimate is 1.6% (as we mentioned on 7/20), above the Street’s 1.2%. Although our projection makes us look more optimistic, we certainly are not. Regarding the consumer confidence survey, economists are looking for 72.0, representing no change from June. We expect a slight decline.

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