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Facebook’s Q4 numbers were “very good everywhere”: Santosh Rao

Santos Rao, head of research at Manhattan Venture Partners, joined Yahoo Finance Live to discuss Facebook’s Q4 revenue report.

Video transcription

SEANA SMITH: Facebook’s earnings came out a few minutes ago, outpacing earnings per share and earnings. But the stock is under pressure here after hours. Facebook warning of some side winds facing the company this year. For more information we want to introduce Santos Rao. He is the head of research at Manhattan Venture Partners.

And Santos, we currently have a stock price up on the screen, with stocks only around 1

and 1/2%. Still, when you look at the EPS number and the revenue number, it actually looks pretty good. Wall Street is disappointed with these results. Are you disappointed with the numbers we just received?

SANTOSH RAO: No, I think the fourth quarter figures were very good. I don’t think that’s a problem. And that wouldn’t be a problem. The market was expecting a good quarter. I think it’s all about direction and looking ahead. There are some problems that, remember, Facebook is the worst in terms of negative investor sentiment among all FAANG. So it was layered on. That was already there.

And then, you have that attention from the company. This is a kind of addition to the fear factor. But I think overall, I think it’s good. I think the company has some headwinds. We knew about ad targeting and a few other issues. But in the end, advertising is part of most of the revenue.

And it works very well. There is expected to be some delay, but not really. It will not be derailed as such. There will probably be some caution there. But overall, I think 2021 is well positioned. So I don’t think I would worry. I would look – see this as a good opportunity to log in if you want.

ADAM SHAPIRO: Well, that warning we got from the comment, you know, is ambiguous. We quote: “We continue to face considerable uncertainty as we deal with a number of cross-currents in 2021.” One of these currents is Congress. And that will take a long time, but that’s a very serious concern, isn’t it?

SANTOSH RAO: Remember, this canopy has been there for a long time. And every time after each income statement, the shares are sold a little and then the market regroups. I mean, it’s a juggernaut, I mean, if you haven’t already. So they will ride through it. Yes, there is a headwind. But I don’t think they won’t be broken. Instagram will not be taken away. WhatsApp will not be taken away. There is enough competition in the social media space.

So this will not be a problem. I don’t think the antitrust issue is really a solid negative against them. So overall, I think they’re going to make it. Yes, this negative comment, this overhang will be there for a while. But I think if you look under the covers, it’s still well positioned in a market that – they have a strong ditch around their business. And they can stand it.

SEANA SMITH: It certainly looks that way so far. We talked about these political and regulatory challenges. And Facebook is – I think you can rightly say – really withstanding many of these fears so far. But if they move forward, if they don’t take the right steps to solve some of these problems, and we’ve certainly seen a lot of reactions against some of these companies over the last few weeks, is there any concern or what point, do you worry maybe that might to start influencing advertising revenue?

SANTOSH RAO: Yes, I think they really have to say the right things and do the right things. They need to listen to what is happening, listen to the regulators and just inform the regulators, let the legislators know that they are playing by the rules. They do nothing that is out of the bucket. So I think that’s the main thing. They just have to stay up to date, say the right things and do the right things at this point.

And they are. They say the right things. I mean, this political one – this whole atmosphere was so heated and you couldn’t escape it. So you are hit one way or another. But I think they did very well in the end. And you will see this. I want to say that every political season they are hit by every side. They just can’t please everyone. But I think as long as they stay on the course, they do the right things, I think they will get better.

ADAM SHAPIRO: And when they say in the report, they’re talking about a steady or moderate acceleration in revenue growth in the first and second quarters of the year, but then, whether it’s like, or setting expectations lower, or they’re a runner who is at too much speed? In the second half of the year we will go through periods of growing growth, which will put significant pressure on annual growth rates.

SANTOSH RAO: Yes, and you have easy compasses in the first two quarters, because when the pandemic hit and all that, there were some punches in the numbers in the first two quarters of 2020. So you have easier compasses in 2021. So the first two quarters said they will be better. And the second quarter, the second half of the year, will have some pressure.

They do not say that things will fall off the cliff. They just say there will be pressure. And I don’t think even they know how things will turn out in general. But they are cautious. They don’t want to know – they don’t want to move forward in general. But I think net-net, with most businesses under them, about 10 million advertisers who pay – in their books, rather. Thus, they have a strong market presence. And I don’t think they’re leaving. And they can handle that.

SEANA SMITH: Santos, what is the only thing you want to hear from Mark Zuckerberg in the invitation to win, which is expected to start later this hour?

SANTOSH RAO: Yes, I think the biggest thing is how is it … what is the regulatory backwind? What does he plan to do? How do you deal with all these antitrust issues? And then, in general, how do I deal with – how will I deal with the problem of targeting with Apple’s ad targeting? So what is their strategy to deal with this? So I think these are the two big problems that go beyond stocks. And I want to see what he will say on that.

SEANA SMITH: Okay, Santos Rao, head of research at Manhattan Venture Partners, it’s always great to talk to you.

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