Wednesday, January 31, 2018

All of Facebook's 4Q 2017 Pretax Income Amounts are Still Great ....................................................................................... 4Q 2017 Revenues Up 47% Over the 4Q 2016, the Same Revenue Growth of 47% For the Entire Year 2017 Over Annual 2016 ....................................................................................... 4Q 2017 Operating Income Was Up 61%, Very Little Growth Deceleration From the 63% Growth For Annual 2017 Over Annual 2016 ....................................................................................... The 4Q 2017 Pretax Income Growth of 65% is the Same as the 65% Pretax Income Growth For Annual 2017 Over Annual 2016 ....................................................................................... But The Huge Problem Facebook Has in Its 4Q 2017 Earnings Release Is Its Pretty Much Complete Lack of Transparency on Its Income Taxes ....................................................................................... In Its 4Q 2017 Earnings Release, Facebook Mentions Three Items Making Up Its 4Q 2017 Total Income Tax Expense Charge Due To the Trump Tax Bill of $2.270 Bil: (1) The Tax Cost of Mandatory Foreign Earnings Repatriation, (2) The Impact of the Remeasurement of Net Deferred Income Tax Liabilities or Assets Due To the 40% Drop in the US Federal Income Tax Rate From 35% to 21% and (3) The Change in the Deferred Income Tax Valuation Allowances For Their Realizability Because of the Trump Tax Bill ....................................................................................... But What Astute Investors Want is an Individual Breakdown of Those Three Item Amounts: (For Instance, They Would Much Rather See a Large Tax Benefit Amount Due To Net Deferred Income Tax Liabilities Because That Is a Real Economic Gain From Tax Debt Forgiveness and They Hate To See Any Income Tax Expense From Decrease in Value of a Deferred Income Tax Asset Because of a Decline in Tax Rates Because That Is a Real Economic Loss ....................................................................................... What Astute Investors Also Want To See is a Cheap Income Tax Rate on the Mandatory Foreign Earnings Repatriated (They Even Like a Higher Total Cost of Foreign Earnings Repatriation If It Still Yields a Related Really Cheap Income Tax Rate) ....................................................................................... The Worst Thing You Can Do Is To Tell Them Nothing On This Critical Issue, Which is What Facebook Elected To Do ....................................................................................... When I Review the 2016 Income Tax Footnote, at Dec 31, 2016, I See Only $2.87 Bil of Cumulative Unremitted Earnings Which Have Been Permanently Reinvested and I Also See $357 mil of Deferred Income Tax Liabilities on Unremitted Foreign Earning That Are Not Permanently Invested ....................................................................................... The Best Outcome Is If Those Two Amounts Increased Substantially in 2017 ....................................................................................... And Lastly, It Would Be Wise To Emphasize the Increase in 4Q 2017 Net Income If the $2.270 Bil Income Tax Expense Charge Related To the Trump Tax Bill Were Removed: If My Quick Math is Right, 4Q 2017 Net Income Would Increase By an Extremely Impressive 83% If the Impact of the $2.270 Bil Trump Tax Bill Earnings Charge Were Removed