Facebook Inc. (
FB
)
reported earnings of 12 cents in the third quarter of 2012.
However, including stock-based compensation, payroll taxes and
income tax adjustment, Facebook reported 6 cents per share, which
missed the Zacks Consensus Estimate by a penny.
Quarter Details
Facebook's revenue (excluding foreign exchange effect) jumped
38% year over year to $1.31 billion, much ahead of the Zacks
Consensus Estimate of $1.23 billion. The year-over-year growth
was driven by strong advertising revenue (87% of the total
revenue) that climbed 43% year over year to $1.4 billion.
Approximately 14% of the ad revenue came from mobile.
Facebook generated the rest of the revenue from payments &
other fees, which increased 13% year over year to $176.0
million.
The strong upside in advertising revenues was primarily driven
by a 27% increase in the number of ads delivered. Strong increase
in ad inventory due to new product launches fully offset lower
ads per user (due to continuing shift to mobile) in the
quarter.
Average price per ad increased 7.0% year over year, primarily
aided by a 20% increase in CPMs in the US due to the sponsored
stories in news feed. Price per ad growth was also strong in Asia
and rest of the world, which fully offset a decline in
Europe.
Monthly Active Users (MAU) improved 26% year over year to 1.01
billion at the end of September 30, 2012. Mobile MAUs surged
61.0% year over year to 604 million at the end of quarter. During
the same period, Daily Active Users (DAU) increased 28.0% year
over year to 584 million.
Average revenue per user (ARPU) increased 4% annually, with
approximately 20% growth in North America and rest of the
world.
However, this healthy growth in revenue and user base was
partially offset by higher costs and operating expense in the
quarter, particularly due to stock-based compensation, which
totaled $148 million in the quarter. Operating expenses shot up
64.0% year over year to $885.0 million, driven by headcount
growth and costs incurred related to infrastructure
development.
Facebook's operating income decreased 9.0% year over year to
$377.0 million. Operating margin was 30% compared with 43%
reported in the year-ago quarter.
Net loss (including stock based compensation and payroll tax
expense) was $59.0 million or 2 cents per share compared with net
profit of $227.0 million or 10 cents per share in the year- ago
quarter.
Facebook ended the quarter with cash & cash equivalents of
$10.45 billion compared with $10.19 billion reported in the
year-ago quarter. The company generated $250.0 million as cash
flow from operations in the quarter compared with $242.0 million
in the year-ago quarter.
Outlook
Facebook expects fiscal 2012 capital expenditure to remain at
the low end of the previously guided range of $1.6 billion to
$1.8 billion.
Our Take
We believe that Facebook has significant growth opportunities
from increasing online advertising spending on mobile devices as
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 can use this
massive database to help advertisers target relevant ads going
forward.
Facebook is facing significant competition in the display
advertising market from
Google (
GOOG
)
. Rising concerns over the effectiveness of Facebook ads as
compared to Google's AdSense has been a headwind lately. As per
eMarketer, Google is set to grab the #1 position in the display
ad market by the end of 2013. We believe that Google's increasing
popularity has the potential to limit Facebook's ad revenue
growth going forward.
Apart from increasing competition, lack of visibility around
mobile monetization remains a concern. Although Facebook launched
several new products in the last quarter, we believe that the
mobile platform will take some time to generate significant
revenue. Moreover, continued investments to expand mobile
offerings are expected to hurt margins in the near term.
We remain Neutral on the stock over the long term (6-12
months). Currently, Facebook has a Zacks #3 Rank, which implies a
Hold rating in the near term.
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