Facebook (NASDAQ: $FB) released their Fourth Quarter and Full Year 2016 earnings today. Here’s what you need to know:
- Adjusted EPS: $1.41 (vs. $1.31 per share expected)
- Revenue: $8.81B (vs. $8.51B expected)
- Monthly active users (MAU): 1.86 billion (vs. 1.83 billion expected)
- Daily active users (DAU): 1.23 billion (vs. 1.19 billion expected)
- Profit of $3.57B ($1.21 per share), up 128% YoY
Facebook’s earnings crushed even the most bullish of expectations. The Menlo Park, CA based social media giant beat estimates on both the top and bottom lines, posting adjusted quarterly earnings of $1.41 per share and revenues of $8.81B. Wall Street analysts had expected $1.31 per share on revenues of $8.51B. In addition, Facebook beat consensus growth in its Monthly Active Users (MAU) and Daily Active Users (DAU) metrics. The company announced 1.86 Billion MAU (versus 1.83B expected) and 1.23 Billion DAU (versus 1.19B expected).
Shares closed trading Wednesday at $133.23 and peaked after-hours to $137.99, but ended extended-hours trading up fractionally to $133.40.
Driven by a strong holiday season, Facebook’s ad revenue jumped 53% in the quarter. Mobile ad revenue accounted for a total of 84% of total ad sales. This represented an increase of 80% YoY. Furthermore, the company managed to post a $3.57 billion profit ($1.21 a share GAAP & fully diluted). Facebook’s profit surged up 128% from the same quarter a year earlier ($1.56 billion & $0.54 a share). Facebook disclosed that Q4 expenses also grew to $4.24 billion, up 29% YoY, echoing their goal to increase investment within the company over the next year.
In addition to the strong revenue numbers, the social media giant has seen impressive performance in Average Revenue per User (ARPU). This key metric, used to help determine the value of user growth as it relates to revenue, has grown quarter after quarter and year after year. According to their investor slides, Facebook grew Worldwide ARPU by an impressive 29.5% YoY.
Impressive User Growth
Ever since launch, Facebook has continued a steady trend of user growth across their core platform. By any metric (monthly, daily, mobile, etc.), the company continues to see strong adoption.
Perhaps the most impressive growth has come from the company’s mobile side of the business. After filing an IPO in 2012, CEO Mark Zuckerberg outlined that the company’s biggest hurdle over the next few years will be developing a mobile strategy. Based on the continued growth, Zuckerberg has well delivered on his promise to shareholders.
Video
Mark Zuckerberg took a significant chunk of the investor conference call to discuss the company’s video strategy moving forward. He outlined new features that have been rolled out Instagram, a new video tab for all United States users in the core Facebook Platform, as well as some of their plans for monetizing Facebook Live moving foward. Zuckerberg was clear, and even stated, that much like mobile in 2012, he is treating the company’s video strategy as the core and imperative initiative.
Fake News
During the course of the United States Presidential election, Facebook came under fire for allowing fake news articles to be shared millions of times. Some argued that the sharing of lies & misinformation played a critical role in the eventual outcome of the election. The accusations prompted Zuckerberg to post an immediate update to the world on November 12th, a few days after the results. Sheryl Sandburg, the company’s COO, also reiterated that while it is a problem, it didn’t sway the election.
On the company’s earnings call, Mark Zuckerberg stressed that even though Facebook doesn’t produce unique news & editorial content, the company needs to place a much bigger role in ensuring the shared content is factual.
Zuckerberg said that the team has begun working with independent fact checkers. In addition, the CEO said that this is an opportunity for the company to build Artificial Intelligence that can begin to make quicker decisions than humans when removing factually incorrect content. Facebook realizes that it is responsible for disseminating news to millions of users every day, and is focused on ensuring that people have a place to share and engage with factual content.
“We don’t write the news that you read, but we want to be a place where people can access information and have meaningful conversations about it,” Zuckerberg said.
Company Guidance
Last conference call, CFO Dave Wehner cautioned investors that Facebook was approaching it’s maximum ad load. [Ad load refers to the volume of ads shown in a given user’s newsfeed].
“We anticipate ad load on Facebook will continue to grow modestly over the next 12 months and then will be a less significant factor driving revenue growth after mid-2017. Since ad load has been one of the important factors in our recent strong period of revenue growth, we expect the rate at which we are able to grow revenue will be impacted accordingly.” – Dave Wehner
Despite the caution, Facebook increased revenue via mobile & video ads. Stronger engagements across their suite of apps played a significant factor, too. However, Wehner did again reiterate caution on ad load moving forward. Wehner and Zuckerberg also reiterated that they expect expenses will “meaningfully” increase in 2017.
The company was noticeably silent in regards to China. Back in November, a news story broke about Facebook possibly creating a censorship tool for the Chinese government. This would allow them to penetrate the Chinese market. China’s government currently restricts its people’s access to the web.
My Take on $FB
Facebook consistently beats estimates on growth that should continue. While they will face headwinds from decreasing ad load, I believe the potential for Facebook to capture the video advertising market is enormous. Additionally, Facebook owns Oculus, the high-end virtual reality platform. The company aims to become the leader in virtual reality, and it’s seen success thus far. Finally, Facebook has been consistent in delivering on their promises and has had a rather successful acquisition history. This all around solid track record should make investors with a longer time horizon excited for what the future holds.
Disclosure: As of this writing, I am LONG shares of $FB and I own it in my motif portfolio.
