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Facebook (FB) Q2 Earnings Top Estimates Driven by Mobile Ads
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As expected, Facebook, Inc. delivered yet another stellar quarter driven by its mobile and live video efforts.
Second quarter adjusted earnings per share of 76 cents and revenues of $6.436 billion crushed the respective Zacks Consensus Estimate of 62 cents and $6.008 billion. Shares of Facebook were up over 5% in aftermarket trading to close at a high of $128.93. Notably, this is Facebook’s fourth successive quarter of earnings and revenue beat.
Facebook’s consistently expanding user growth remains one of its biggest growth catalysts. Facebook has an unparalleled user base of 1.71 billion (up 15% year over year) monthly active users (MAUs). In addition, at the end of the quarter, mobile MAUs were 1.57 billion, representing 20% year-over-year growth. Daily Active Users (DAUs) were 1.13 billion, reflecting 17% growth year over year while Mobile DAUs breached the 1 billion mark. Mobile DAUs were 1.03 billion, up 22% year over year.
However, we were expecting more commentary on how Facebook plans to monetize Messenger. Again, there were no specific numbers related to Intsagram’s contribution to revenues.
Facebook reported non-GAAP earnings of 97 cents in the quarter, up 94% year over year. Both GAAP revenues and revenues, excluding the impact of year-over-year changes in foreign exchange rates basis, increased 59% year over year.
Breaking down revenue components, GAAP advertising revenues came in at $6.239 billion, surging 63% year over year. Excluding the impact of changes in foreign exchange rates, revenues from advertising also increased 63% year over year. Advertising revenues were driven by increasing mobile engagement, higher number of marketers, continuing investment in new products and robust performance of its news feed ads. Facebook has over 3 million active advertisers and over 60 million active SMBs of which 85% are active on mobile.
Mobile ad revenues in the quarter were $5.2 billion (up 81% year over year), contributing 84% to total ad revenues. Ad impressions grew 49%, driven by surging mobile ad impressions. Average price per ad increased 9% from the year-ago quarter. Average revenue per user was $3.82.
Payments and other fees decreased 8% year over year to $197 million in the reported quarter owing to a reduction in payment revenues related to PC games.
On the cost front, cost & expenses grew 33% to $3.690 billion, driven by increases in workforce and marketing expenses. However, robust revenue growth provided enough cushion to operating margins. Operating income more than doubled to $2.746 billion. Non-GAAP operating margin was 43%, up from 31.5% reported in the year-ago quarter.
Balance Sheet & Cash Flow
Facebook exited the quarter with cash & cash equivalents and marketable securities of $23.3 billion, up 26.4% year over year. The company generated nearly $6.18 billion of cash flow from operating activities in the first six months compared with $3.58 billion in the year-ago quarter. Free cash flow was $4.05 billion compared with $2.53 billion in the year-ago quarter. The company incurred capital expenditure of $2.13 billion in the first half.
Guidance
Facebook said that ad revenues will continue to grow but will now face tougher year-over-year comparisons in the current year. Ad load, which so far has been a leading factor driving ad revenues, will now start to “grow modestly” in the coming quarters and won’t be a big factor after mid-2017. Moreover, as Facebook continues to ramp up investments, the costs will increase. Non-GAAP expenses are projected to increase in a band of 45% to 50% while capex is now expected to be $4.5 billion. Stock-based compensation is estimated in the range of $3.1 billion–$3.3 billion. The company expects amortization expenses in 2016 to be within $700 million–$800 million.
Final Word
Facebook has clearly highlighted its ambitions of being more than just a social network. It outlined its plans for the next decade, with a strong focus on AI and AR/VR technology. The company is aggressively working on monetizing its subsidiaries, Messenger, Oculus and WhatsApp. Chatbots and “conversational commerce” are likely to be the strategies for Messenger and WhatsApp as well.
Moreover, Facebook has been aggressively promoting “Live” in order to capture the opportunity presented by ever increasing video viewing on social media platforms. Leading research firm, Forrester Research projects digital ad revenues to touch $12.6 billion by 2019. The company has signed deals with Internet and media celebrities to churn out more content for its Live platform.
As of now, all of these appear to be terrific growth engines but it will be one Herculean task for the company to actually make all of them work. User growth and ad load have already reached a point where growth will now be more subdued. Moreover, intensifying competition for users & ad dollars from the likes of Alphabet (GOOGL - Free Report) and Twitter Inc and increasing investments threaten to thwart its growth prospects.
At present, Facebook carries a Zacks Rank #3 (Hold).
Zacks Rank
Some better-ranked stocks in the tech space include NetEase, Inc (NTES - Free Report) , Ellie Mae, Inc . Both carry a Zacks Rank #2 (Buy).
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Facebook (FB) Q2 Earnings Top Estimates Driven by Mobile Ads
As expected, Facebook, Inc. delivered yet another stellar quarter driven by its mobile and live video efforts.
Second quarter adjusted earnings per share of 76 cents and revenues of $6.436 billion crushed the respective Zacks Consensus Estimate of 62 cents and $6.008 billion. Shares of Facebook were up over 5% in aftermarket trading to close at a high of $128.93. Notably, this is Facebook’s fourth successive quarter of earnings and revenue beat.
Facebook’s consistently expanding user growth remains one of its biggest growth catalysts. Facebook has an unparalleled user base of 1.71 billion (up 15% year over year) monthly active users (MAUs). In addition, at the end of the quarter, mobile MAUs were 1.57 billion, representing 20% year-over-year growth. Daily Active Users (DAUs) were 1.13 billion, reflecting 17% growth year over year while Mobile DAUs breached the 1 billion mark. Mobile DAUs were 1.03 billion, up 22% year over year.
However, we were expecting more commentary on how Facebook plans to monetize Messenger. Again, there were no specific numbers related to Intsagram’s contribution to revenues.
FACEBOOK INC-A Price, Consensus and EPS Surprise
FACEBOOK INC-A Price, Consensus and EPS Surprise | FACEBOOK INC-A Quote
Quarterly Numbers in Details
Facebook reported non-GAAP earnings of 97 cents in the quarter, up 94% year over year. Both GAAP revenues and revenues, excluding the impact of year-over-year changes in foreign exchange rates basis, increased 59% year over year.
Breaking down revenue components, GAAP advertising revenues came in at $6.239 billion, surging 63% year over year. Excluding the impact of changes in foreign exchange rates, revenues from advertising also increased 63% year over year. Advertising revenues were driven by increasing mobile engagement, higher number of marketers, continuing investment in new products and robust performance of its news feed ads. Facebook has over 3 million active advertisers and over 60 million active SMBs of which 85% are active on mobile.
Mobile ad revenues in the quarter were $5.2 billion (up 81% year over year), contributing 84% to total ad revenues. Ad impressions grew 49%, driven by surging mobile ad impressions. Average price per ad increased 9% from the year-ago quarter. Average revenue per user was $3.82.
Payments and other fees decreased 8% year over year to $197 million in the reported quarter owing to a reduction in payment revenues related to PC games.
On the cost front, cost & expenses grew 33% to $3.690 billion, driven by increases in workforce and marketing expenses. However, robust revenue growth provided enough cushion to operating margins. Operating income more than doubled to $2.746 billion. Non-GAAP operating margin was 43%, up from 31.5% reported in the year-ago quarter.
Balance Sheet & Cash Flow
Facebook exited the quarter with cash & cash equivalents and marketable securities of $23.3 billion, up 26.4% year over year. The company generated nearly $6.18 billion of cash flow from operating activities in the first six months compared with $3.58 billion in the year-ago quarter. Free cash flow was $4.05 billion compared with $2.53 billion in the year-ago quarter. The company incurred capital expenditure of $2.13 billion in the first half.
Guidance
Facebook said that ad revenues will continue to grow but will now face tougher year-over-year comparisons in the current year. Ad load, which so far has been a leading factor driving ad revenues, will now start to “grow modestly” in the coming quarters and won’t be a big factor after mid-2017. Moreover, as Facebook continues to ramp up investments, the costs will increase. Non-GAAP expenses are projected to increase in a band of 45% to 50% while capex is now expected to be $4.5 billion. Stock-based compensation is estimated in the range of $3.1 billion–$3.3 billion. The company expects amortization expenses in 2016 to be within $700 million–$800 million.
Final Word
Facebook has clearly highlighted its ambitions of being more than just a social network. It outlined its plans for the next decade, with a strong focus on AI and AR/VR technology. The company is aggressively working on monetizing its subsidiaries, Messenger, Oculus and WhatsApp. Chatbots and “conversational commerce” are likely to be the strategies for Messenger and WhatsApp as well.
Moreover, Facebook has been aggressively promoting “Live” in order to capture the opportunity presented by ever increasing video viewing on social media platforms. Leading research firm, Forrester Research projects digital ad revenues to touch $12.6 billion by 2019. The company has signed deals with Internet and media celebrities to churn out more content for its Live platform.
As of now, all of these appear to be terrific growth engines but it will be one Herculean task for the company to actually make all of them work. User growth and ad load have already reached a point where growth will now be more subdued. Moreover, intensifying competition for users & ad dollars from the likes of Alphabet (GOOGL - Free Report) and Twitter Inc and increasing investments threaten to thwart its growth prospects.
At present, Facebook carries a Zacks Rank #3 (Hold).
Zacks Rank
Some better-ranked stocks in the tech space include NetEase, Inc (NTES - Free Report) , Ellie Mae, Inc . Both carry a Zacks Rank #2 (Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>