Facebook’s (FB) fourth-quarter results easily beat our internal expectations and the consensus as the daily average user count grew sequentially in the largest ad spending markets (U.S. and Europe), even though the firm remains in the midst of addressing data security and privacy issues. In our view, Facebook’s network effect moat source remains intact as demonstrated by further improvement in user monetization during the quarter. We remain convinced that further growth in Instagram, IGTV, and Stories users will continue to attract advertisers to Facebook’s platform. Management did not change its 2019 guidance and expects further deceleration in top-line growth. In addition, it sees higher capital expenditure along with expense growth outpacing revenue growth in 2019. After making only slight adjustments to our projections and taking into account time value of money (as we rolled our model forward), we upped our fair value estimate of wide-moat Facebook by 2% to $190 per share, representing a 2019 enterprise value/adjusted EBITDA multiple of 13. As of the Jan. 30 closing price, Facebook shares were in 4-star territory and remained attractive. We note that in reaction to the fourth-quarter results, those shares are approaching 3-star territory as they were up more than 10% in after hours trading.
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Ali Mogharabi does not own shares in any of the securities mentioned above. Find out about Morningstar's editorial policies.