Facebook Inc. (
reported earnings of 17 cents in the fourth quarter of 2012,
which improved 13.3% from the year-ago quarter and jumped 41.7%
from the previous quarter. However, including stock-based
compensation and payroll taxes, Facebook reported 9 cents per
share, which missed the Zacks Consensus Estimate by a couple of
Revenues (excluding foreign exchange effect) jumped 42.2% year
over year and 22.4% sequentially to $1.61 billion, much ahead of
the Zacks Consensus Estimate of $1.53 billion. Year-over-year
growth was driven by strong advertising revenue (84.1% of the
total revenue) that surged 43.4% from the year-ago quarter and
18.8% from the previous quarter to $1.35 billion.
The strong growth in advertising revenue was primarily driven
by Facebook's expanding customer base. A number of companies such
as Michael Kors, online shopping site JackThreads, and
selected the Facebook platform to launch and promote
Average revenue per user (ARPU) increased 11.6% year over year
and jumped 19.4% sequentially to $1.54. Ad impressions jumped
46.0% year over year, primarily driven by faster impression
growth in developing markets of Asia and Latin America.
Facebook's decision to lower market reserve price in these
regions increased the number of ads posted.
Average price per ad decreased 4.0% year over year, primarily
due to lower price rates in the Asian and Latin American markets.
Average price in the developed countries continued to increase
strongly, with the U.S. and Canada increasing 18% from the
Monthly Active Users (MAU) improved 25% year over year and
4.9% sequentially to 1.06 billion in the reported quarter. Mobile
MAUs surged 57.4% year over year and 12.6% from the previous
quarter to 680 million. Mobile only MAUs (mobile users who
accessed Facebook solely through mobile apps or mobile website)
increased 170.7% year over year and 24.6% sequentially to 157
During the same period, Daily Active Users (DAU) increased
28.0% year over year and 5.8% sequentially to 618 million.
Mobile revenue (19.6% of total revenue) jumped 95.2%
sequentially to $311.0 million, which represented 23.0% of
advertising revenue. During the quarter, Facebook launched a new
way for advertisers to buy guaranteed ad impressions. The new
format helped Wal-Mart (WMT) deliver 15 million mobile ads
to its existing and potential customers over the Thanksgiving
The company also launched a new Facebook app for
Android operating system during the quarter.
Facebook generated $256.0 million from payments & other
fees that include $66.0 million additional revenue as the company
recognized revenue from four months of payments transactions for
Facebook's operating margin was 33% compared with 48.5%
reported in the year-ago quarter. This significant decline was
primarily driven by higher costs, which was 67.0% of total
revenue, much higher than 51.5% in the year-ago quarter. This
strong year-over-year growth in costs was driven by headcount
growth and costs incurred for infrastructure development.
However, on a sequential basis operating margin expanded 310
basis points (bps), primarily due to modest increase in total
Net income (excluding stock-based compensation, payroll tax
expense and income tax expense) improved 18.3% from the year-ago
quarter and 37.0% sequentially to $426.0 million in the reported
Balance Sheet & Cash Flow
Facebook ended the quarter with cash & cash equivalents of
$9.63 billion compared with $10.45 billion reported in the
previous quarter. The company generated $681.0 million as cash
flow from operations in the quarter compared with $250.0 million
in the previous quarter.
Facebook expects to continue investments on improving quality,
engagement and value of its ads, which will further boost
advertiser demand in 2013. However, Facebook expects revenues
generated through payments from the games platform to remain
subdued. Facebook games are mostly desktop based and declining
desktop usage in the developed markets is expected to hurt its
top-line growth in 2013. Non-games payment (revenues earned from
promoted posts and gifts) is expected to remain small in
Capital expenditure is expected to be around $1.8 billion in
2013 due to continuing investments in servers, new data and
network infrastructure. Total expenses are expected to increase
approximately 50.0% in 2013.
We believe that Facebook has significant growth opportunities
from increasing online advertising spending on mobile devices
compared to traditional formats. Facebook's massive user base and
its ability to track personal details over time make it a
formidable force in the online ad market. Facebook is using this
massive database to help advertisers target relevant ads going
Moreover, Facebook's growing market share in mobile segment,
improving visibility around mobile monetization, new products
such as the recently launched Graph Search and continuing
investments in infrastructure development will boost growth. This
will also help it compete against companies such as Google and
However, increasing investments may hurt profitability in the
Currently, Facebook has a Zacks Rank #2 Rank (Buy).
FACEBOOK INC-A (FB): Free Stock Analysis
GOOGLE INC-CL A (GOOG): Free Stock Analysis
PEPSICO INC (PEP): Free Stock Analysis Report
To read this article on Zacks.com click here.