<p>Facebook face the music, albeit a pleasant one, for its 1Q2018 results. It announced a solid set of results with the share price jumping by more than 9%.</p><p><span> </span></p><p><strong>1) The music was pleasant</strong></p><p>Facebook’s results beat expectations with revenue growth at a healthy 49% y-o-y. EPS was at $1.69, beating expectations of $1.35. The company benefited from higher operating leverage with operating margin expanding by 4% to 45.5%.</p><p></p><p><strong>2) Cambridge Analytica scandal</strong></p><p>Facebook faced a backlash from the Cambridge Analytica scandal where the social media platform is used to spread fake news during election campaigns. The share price has dropped more than 10% in March. Facebook is addressing these concerns by investing aggressively to strengthen the safety of its platform. It is guiding its operating expenses to grow 50-60% y-o-y from 45-60%. Capex is increased to $15bn as a result of increased spending at data centers, servers and network infrastructure. Headcounts are expected to expand especially in the areas of security and connectivity. From the higher expenditure, the management is showing its commitment in enhancing the reliability of the platform and protecting user data.<span></span></p><p><span> </span></p><p><strong>3) Advertisement machine</strong></p><p>The strong set of results are a testament to the popularity of Facebook. Advertisement revenue gained 42% y-o-y. There was pricing power with the ARPU jumping 32% y-o-y to $5.45. Advertising ARPU for the US and Canada surged 40%. In Asia and Europe, the advertising ARPU and 51% respectively. The number of active users also saw a healthy growth with Monthly Active Users gaining 13% y-o-y.</p><p> Despite all the recent headline noises, Facebook is still popular to users.</p><p> Facebook’s results are music to the ears for its investors.</p><p> </p><p><span>Edmund Chan, CFA</span></p>