Before Facebook (FB) released its first quarter, the share price had increased by about 40% since the beginning of the year. The share price increased an additional 10% afterwards as the market valued the results.
The company reported strong user statistics and sales exceeded expectations. But not everything is perfect. The management faces the consequences of their security deficiencies. In addition to the legal costs reported in the quarter, the company will face additional expenses over the next few years.
In this context, the market values the company at a reasonable price despite the impressive sales growth.
Strong user base
Despite the fact that about 20% of the planet connects Facebook every day, DAUs (Daily Active Users) increased 8 % the year after . In comparison, both Twitter (TWTR) and Snaphchat (SNAP) DAUs increased by 11% on a much smaller user base.
Growth is consistent across all regions except in the US where DAUs began to stabilize several quarters ago. 
Source: Author based on company reports
] As a reminder does not include the numbers Instagram, WhatsApp and Oculus users. The management estimates that around 2.1 billion people use at least one Facebook app every day.
The decline in DAU's growth observed in recent quarters has also stabilized.
Source: Author based on company reports
The solid user base is surprising considering the latest security and privacy issues that were published after the Cambridge Analytica scandal.
Over the past few months, the list of security errors has increased. The events circumvent the most basic security principles. For example, Facebook saved unencrypted passwords from hundreds of millions of users within a few years.
More recently, Bloomberg Facebook reported publicly published user information on Amazon's (AMZN) AWS platform. And Facebook asked some new users for their email passwords, etc.
This series of events and user growth shows that users are indifferent to Facebook's security issues. The main risk of dealing with these concerns is regulatory.
With this context, privacy-focused platform Mark Zuckerberg talked about the fact that the earnings call doesn't seem so critical to the users. But the concept, which will be available in the long term, may be important for building trust in regulators.
Impressive sales growth
The security issues and Facebook's reputation don't seem to be a concern for advertisers either.
While DAU and MAU both increased by 8%, revenue increased 30% in fixed currency, indicating that advertisers are using more with Facebook. During the earnings call, the management also mentioned the number of advertisers.
The decline in ARPU (average per-user income) compared to the previous quarter is due to the seasonal nature of advertising expenses. Compared to last year, ARPU increased by about 16.1% and growth was consistent in all regions.
Source: Author based on company reports  Sales growth is remarkable considering that headwind histories represent due to their lower income per impression compared to with the feed.
In the context of these impressive results, the company faces the challenge of increasing the cost of tackling security issues . The extra cost is twice.
The first aspect of security issues, which are visible during the quarter, is that the company will face legal costs . The company reported a $ 3 billion bill due to the FTC's inquiry. These costs can even increase as the management set a $ 3 billion range to $ 5 billion.
And the threat of fines and legal costs does not end there. For example, in the beginning of the year, accused Vietnam Facebook of breaking cyberlover . Facebook also has problems with Germany's antitrust regulator because of its user data policy .
The second aspect of the transition to a safer environment is Facebook spending will continue to increase . During the earnings interview, the management increased the outlook for the 2019 spending to grow 55%, considering $ 3 billion in legal fees in the quarter . But beyond the exceptional costs, management also showed aggressive investments over 2019 to improve safety. The outlook for the decline in the operating margin to approx. 35% in the long term did not change.
Back to a stock price of $ 200
At a stock price of around $ 200, the market values the company at a PE ratio without cash of about 25.45x.
<img src = "https://static.seekingalpha.com/uploads/2019/4/24/8510271-15561449028366752.png" alt = "Facebook Valuation by Earnings Q1 2019  Source: Author  The calculation assumes:
- FY 2019 revenue growth of 25% compared to 2018.
- Operating margin of 35%
- Tax rate of 15%
Despite the growth, the market does not value the company at a discount with thought on the uncertainties surrounding the legal costs with many lawmakers.
Also, the 15% tax rate cannot be sustainable in the long term. The annual report for 2018 shows that Facebook generated $ 16.56 billion of pre-tax profits outside the United States, while providing approximately $ 1 billion Similar tax rate is 6%, according to the OECD, the worldwide average statutory corporate tax rate is 21.6% Some European countries, such as France, began to levy a tax on income to compensate for the low tax rate due to s cat optimization.
Regardless, even with a 15% tax rate, a PE ratio beyond cash over 25x is not & # 39; t a bargain considering the extra costs that will offset some of the 25% revenue growth.
Facebook reported an impressive sales growth of 26% the year before. Despite a large user base, MAU and DAU both grew by 8%.
The security issues that made publicly over the past few months did not affect user growth and advertiser spending .
But the biggest threat to the company is related to the cost of managing the regulators. In addition to the legal costs of past errors, better security and privacy will entail additional expenses .
With this context, the share price of $ 200 does not represent a bargain. The PE cash ratio exceeds 25x, and the company also faces the risk of higher tax rates.
Note : If you liked this article and want to receive updates on my latest research, click Follow "next to my name at the top of this article.  Notice: I / We have no posts in any of the aforementioned shares and no plans to start any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. does not receive compensation for it (other than from Seeking Alpha). I have no business relationship with a company whose stock is mentioned in this article.