Facebook Inc. (
reported impressive fourth-quarter results, which reflected its
growing dominance in the mobile advertising market. Mobile ad
revenues were $1.25 billion, which comprised 53.0% of ad
revenues, up from 49.0% in the previous quarter. Shares surged
12.1% ($6.47) in after-hours trading.
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Revenues (excluding the foreign exchange effect) surged 63.2%
from the year-ago quarter to $2.59 billion, which comfortably
beat the Zacks Consensus Estimate. The strong revenue performance
was aided by robust advertising revenues that jumped 76.5% from
the year-ago quarter.
Advertising revenues were driven by increasing mobile engagement,
higher number of marketers, continuing investment in new products
and robust performance of its newsfeed ads. New products and
initiatives such as Internet.org, graph search, Instagram video,
and Messenger 3.0 helped Facebook achieve significant traction
over the last 12 months.
Facebook messenger was among the top most-downloaded applications
Android in Dec 2013. Messenger users jumped 70.0% in the fourth
quarter. The company launched Instagram for
During the quarter, Facebook launched Instagram Direct, which
allows users to send private photos and video messages. The
company also reported that Facebook Groups are now being used by
approximately 500 million people every month.
Mobile-only Monthly Active Users (MAU) was 296 million at the end
of the fourth quarter compared with 157 million in the year-ago
quarter and 254 million in the previous quarter. In fiscal 2013,
daily users on mobile outnumbered desktop by approximately 200
As of Dec 31, 2013, Facebook's MAU improved 16.0% year over year
to 1.23 billion. Mobile MAUs surged 39.0% year over year to 945
million. Daily Active Users (DAU) increased 22.0% year over year
to 757 million.
Ad impressions declined 8.0% on a year-over-year basis, primarily
due to lower ad volumes on mobile devices. However, average price
per ad soared 92.0% from the year-ago quarter driven by favorable
mix shift toward high-priced newsfeed ads. Average revenue per
user (ARPU) increased 39.0% year over year to $2.14.
Payments and other fees decreased 6.0% year over year to $241.0
million in the fourth quarter, as the company had recognized four
months of revenues in the year-ago quarter. Payments revenues
from games grew approximately 8% on a year-over-year basis.
Total cost and expenses as percentage of revenues plunged to
56.2% from 67.0% reported in the year-ago quarter. Cost of
revenues, research & development, marketing & sales and
general & administrative expenses decreased 610 bps, 290 bps,
90 bps and 90 bps, respectively.
The lower-than-expected increase in operating expenses drove
operating margin, which surged from 33.0% in the year-ago quarter
to 43.8% in the fourth quarter. Net income margin improved to
20.1% compared with 13.4% reported in the year-ago quarter.
Facebook reported earnings (including stock-based compensation
and payroll tax expense related to it) of 20 cents per share,
which improved considerably from 9 cents in the year-ago quarter,
but missed the Zacks Consensus Estimate by a penny.
Balance Sheet & Cash Flow
Facebook exited the quarter with cash & cash equivalents and
marketable securities of $11.45 billion compared with $9.26
billion in the previous quarter.
Facebook generated $1.23 billion of cash flow from operating
activities compared with $955.0 million in the previous quarter.
Free cash flow was $748.0 million compared with $666.0 million in
the previous quarter.
Facebook expects to carry on with its investments for improving
the quality, engagement and value of its ads and products, which
will further boost advertisers' demand over the long term. The
company expects to continue increase its technical headcount in
Total expenses (including cost of revenues but excluding
stock-based compensation) are expected to increase approximately
40.0% to 45.0% for 2014. Capital expenditure is likely to be in
the range of $2.0 billion to $2.5 billion for 2014.
We believe Facebook's solid fourth-quarter results will put the
teenage fatigue issue on the backburner for some time. The
company has gained significant traction in its mobile ad business
within a very short span of time. This combined with the massive
user base and its ability to track personal details over time
makes it a formidable force in the online ad market.
We believe that Instagram's growing popularity and the new
initiatives such as Internet.org will continue to boost
Facebook's user base, going forward. We expect the company's
international revenue per user to increase at a faster rate,
Moreover, the new products will help the company to face
intensifying competition from the likes of Whatsapp, Snapchat,
Tumblr and Pinterest, going forward.
Currently, Facebook has a Zacks Rank #2 (Buy).