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Facebook Posts Strong Q4 Earnings On User Gains And Mobile Advertising Growth

Facebook ( FB ) posted strong fourth quarter results on Wednesday, February 1, on robust growth in active users and mobile advertising revenues. The social media giant's revenues increased 51% year on year (y-o-y) to over $8.8 billion, beating Reuters' compiled consensus estimates of $8.5 billion. This was driven by a significant rise in advertising revenues, which increased 53% y-o-y to over $8.6 billion. However, this was slightly offset by a decline in Payments & Other Fees collected in the quarter, which was impacted due to a reduction in games played on the Facebook platform on PCs. In terms of the bottom line, the company's adjusted net income grew by a whopping 78% y-o-y to $1.41 per share, easily beating consensus estimates of $1.31 per share.

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Advertising revenue, Facebook's primary source of revenue, grew 53% to over $8.6 billion in the fourth quarter of 2016 driven by growth in mobile ad revenues across geographies. Mobile ad revenues contributed 84% of total advertising revenues, up from 80% in the same period last year. Mobile ad revenues grew both because of an increase in frequency of ads shown in News Feed and the price per ad. The average price per ad increased 3% and total ad impressions rose 49% in Q4 2016 over the same period last year.

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Advertising revenue, Facebook's primary source of revenue, grew 53% to over $8.6 billion in the fourth quarter of 2016 driven by growth in mobile ad revenues across geographies. Mobile ad revenues contributed 84% of total advertising revenues, up from 80% in the same period last year. Mobile ad revenues grew both because of an increase in frequency of ads shown in News Feed and the price per ad. The average price per ad increased 3% and total ad impressions rose 49% in Q4 2016 over the same period last year.

Robust Mobile Advertising Revenue Growth

Advertising revenue, Facebook's primary source of revenue, grew 53% to over $8.6 billion in the fourth quarter of 2016 driven by growth in mobile ad revenues across geographies. Mobile ad revenues contributed 84% of total advertising revenues, up from 80% in the same period last year. Mobile ad revenues grew both because of an increase in frequency of ads shown in News Feed and the price per ad. The average price per ad increased 3% and total ad impressions rose 49% in Q4 2016 over the same period last year.

Another important aspect of Facebook's advertising revenue growth was its growth in average revenue per user (ARPU), especially in North America. ARPU in North America grew at an impressive 45% y-o-y to almost $20 per quarter, driving the company wide ARPU up by 29% to $4.83 per quarter.

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Facebook management reiterated that advertising growth is likely to come down meaningfully in 2017 because the company is going to focus on keeping ad impressions at sustainable levels. Therefore, the next wave of ad revenue growth is expected to come from price per ad and subscriber growth. Also, management stated that hiring expenses and investments in R&D, sales and marketing are expected to rise in 2017.

Impressive Free Cash Flow Growth

One of the impressive aspects of Facebook's business model is its ability to consistently increase free cash flows. Despite a 83% increase in capital investments in Q4 2016 over the same period in 2015, Facebook's free cash flows increased 36% y-o-y in the quarter. This should help the company continue to make investments into newer areas such as its internet.org venture, virtual reality, augmented reality and artificial intelligence.

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User Base Continues To Grow

In terms of engagement metrics, there was 51% y-o-y growth in Facebook's monthly active users (MAUs) to 1.86 billion. To put this in perspective, this means that over 25% of the world's population logs in to Facebook on a monthly basis. This ratio varies from about 64% in the U.S. and Canada to 15% in the Asia-Pacific region. Facebook's monthly active user base remained strong across all platforms, including Instagram, WhatsApp and Messenger.

At the end of December 2016, the number of MAUs on Instagram, WhatsApp and Messenger were 600 million, 1.2 billion and 1+ billion, respectively. With respect to Messenger, management stated in the earnings call that 400 million users now use the voice and video chat on Messenger every month.

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The company reiterated the growing importance of video in content consumption on the Facebook platform, which should also help its advertising revenue in the long term. We expect that Facebook will continue to account for a larger share of the rapidly growing digital ad market going forward, as its product offerings have become highly popular with businesses of all sizes. Facebook's long-term outlook looks strong on the back of strong monetization opportunities on its platforms across geographies as well as inroads into newer areas such as VR.

Please refer to our complete analysis for Facebook here.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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