Facebook Earnings Q1 2015 Review


 


  • Facebook beat earnings estimates, but missed revenue estimates dragged by currency fluctuations.
  • Facebook’s profit margins declined in line with expectations.
  • Facebook’s revenue growth remained at enviable levels in spite of the marginal miss.
  • Strong user growth remains Facebook’s strength and could drive revenue in the coming quarters.

Facebook shares are down by a little over 2% in after-hours trade, following its Q1 2015 earnings release. The social media giant marginally missed analyst estimates of revenue for the quarter, while beating earnings per share estimates comfortably. Facebook’s performance remained strong across parameters, delivering the goods where it matters the most. At large, we think that there’s every reason to remain bullish about this stock.

Estimates Actuals Beat/Miss
Revenue ($ billion) 3.56 3.54 -1%
Non GAAP EPS ($) 0.40 0.42 5%

Facebook Earnings Q1 2015: Revenue Growth Still Robust

Facebook’s revenue growth slipped in Q1, largely owing to foreign exchange fluctuations. Growth for the quarter came in at 42% YoY, with Q1 revenue of $3.54 billion, missing estimates marginally.

Excluding the impact of forex fluctuations though, growth would have been far more impressive at 49% YoY. That’s commendable for a company that’s growing on such a large revenue base.

Revenue from advertising grew by 46% over Q1 2014, to touch $3.32 billion. Excluding the impact of foreign exchange movements, ad-revenue would have clocked a 55% YoY growth. That’s a big positive for Facebook, given that revenue from payments and other fees is clearly declining, falling by 5% YoY this quarter.

Facebook’s monetization on mobile devices continued to improve, contributing 79% of ad revenue in Q1, up from 69% in Q4 2014 and 59% during the same quarter a year ago.

Facebook’s revenue per user growth is another positive, growing at 25% YoY. While Facebook saw improvements in this metric from each of its geographies, growth was driven largely by monetization rates in US & Canada, which grew by 42% to $8.3 per user.

To sum up, barring the relatively slower revenue growth, owing to forex movements, Facebook’s growth story seems to be intact.

Facebook Q1 2015 Earnings: User Growth Still A Big Driver

Arguably the biggest positive for Facebook was strong user growth. Facebook’s monthly active user base grew by 13% YoY to touch 1.44 billion users, while daily active users grew to by 17% over Q1 2014, to reach 936 million users.

On mobile, Facebook had 1.25 billion monthly active users, growing at 24% YoY. Of these, 798 million users were active on a daily basis, on average, representing a 31% YoY increase.

Facebook’s 581 million monthly active users who access the site only on mobile reflect the strength of its platform.

Faster growth in daily active users is likely to aid revenue growth in the coming quarters, as Facebook continues to see improvements in its revenue per user metric.

That apart, Facebook’s eco-system grew stronger with users growing to 800 million on WhatsApp, 600 million on Facebook Messenger and 300 million on Instagram.

Facebook Q1 Earnings: Profitability Declines In Line With Expectations

In Facebook’s earnings call post Q4 2014 earnings, the company’s management set the expectations for higher costs and lower margins. In line with those expectations, Facebook’s operating margin declined to 26%, from 43% in Q1 2014, and 29% in Q4 2014.

The biggest jump in expenses came from R&D costs, which rose from an average 20% of revenue in 2014, to 30% of revenue in Q1. Sales & Marketing spends rose to 17% of revenue, from an average 13% in 2014, partly offset by a drop of 3 percentage points in the cost of revenue.

Facebook’s operating margins in Q4 2014 and Q1 2015, are both a fair bit lower compared to the first three quarters of 2014. The biggest difference has been Facebook’s stock based compensation expenses.

At $896 and $703 million in the two quarters in question, Facebook’s stock based compensation expenses have risen sharply over an average of $314 million over Q1, Q2 and Q3 2014.

Facebook’s net margin stood at 14%, with earnings per share of $0.18, compared to $.025 in Q1 2014.

Facebook Earnings Q1 2015: Non-GAAP Profitability

On a non-GAAP basis, Facebook’s operating and net profit margins stood at 52% and 31% respectively.

Facebook’s non GAAP EPS of $0.42, grew by 20% YoY.

Based on Facebook’s projection of 55% to 65% YoY growth in GAAP expenses for Q2 2015, profits margins could continue to come in lower than 2014 levels. That said, healthy non-GAAP profit margins imply that expenses can be curbed, should Facebook feel the need to do so.

Facebook Earnings Q1 2015: Summing It Up

Revenue growth slipped, largely owing to foreign exchange fluctuations, excluding which, growth was robust on Facebook’s large revenue base.

Profitability declined quite significantly compared to the year ago quarter, but this was factored into expectations following the management’s commentary in its Q4 2014 earnings call.

User growth remained impressive, given Facebook’s massive user base, which should soothe growth concerns. Combined with the sustained growth in Facebook’s Monetization rate, or revenue per user, the trends augur well for growth in the coming quarters.

At large, Q1 2015 saw Facebook perform well on most counts, giving us reason to remain bullish about the stock. You can see our Facebook stock analysis video to keep yourself updated on the company’s key fundamentals with daily updated valuations and price movements of the stock. You can also see our latest stock analysis videos for quick analysis of your favorite tech stocks.

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Neither Amigobulls, nor any members of its staff hold positions in any of the stocks discussed in this post. The author may not be a certified/registered investment advisor, and the opinions expressed should not be treated as investment advice. Buying and selling of securities carries the risk of monetary losses. Readers/Viewers are advised to carry out their own due diligence and consult their investment advisors before making any investment decisions. Neither Amigobulls, nor the author have any business relationship with any of the companies covered in this post.

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