- Solid growth in revenues and earnings marks Facebook Q4 2013.
- Monetization of mobile advertising will continue drive Facebook revenue growth.
- At a PE ratio of 106, Facebook valuations are still very high.
Facebook (NASDAQ:FB), the Menlo Park social giant announced its Q4 2013 and FY 2013 earnings after market hours yesterday (Jan 29). The company reported record numbers beating analyst estimates, on both topline and bottom line, by a mile. The stock is up 17% in pre-market trade (at time of writing) over the closing price on Jan 29.
Facebook Q4 2013: Better monetization drives revenue growth.
Mobile advertising revenue for Q4 2013 was 53% of its total advertising revenue compared to 23% in Q4 2012. Mobile advertising revenue for the quarter was higher than PC advertising revenue, a first for the company. The chart below displays the contribution of mobile and PC to the overall advertising revenue of Facebook.
Mobile advertising in Q4 saw an increase of 305%, driven in part by subscriber growth and to a larger extent by better monetization of the mobile user base. The chart below displays the user growth (Monthly Active Users or MAU’s), revenue growth and revenue per user numbers for mobile and PC user base.
|Q4 2012||Q4 2013||YoY growth||Total MAU's (in millions)||1060||1230||16.0%||Mobile MAU's (in millions)||680||945||39.0%||Quarterly advertising revenue per user||1.25||1.90||51.7%||Quarterly advertising revenue per mobile user||0.45||1.31||191.8%||PC advertising revenue||1023.8||1099.8||7.4%||Mobile advertising revenue||305.8||1240.2||305.6%|
The company saw a 39% increase in mobile users driving the overall user growth to 16% on a YoY basis. The company also saw improved monetization of the mobile user base, up 191% YoY. The overall user base monetization also saw a significant increase of 51.7% YoY. The quarterly revenue growth of 63% was majorly driven by higher monetization as well as huge growth in mobile MAU’s.
The company saw margin expansions on account of cost reduction. The total operating costs in Q4 2013 were 56.2% of revenues against 67% in Q4 2012. The impact on operating profit was substantial at 8% improvement over Q4 2012 operating margin of 33%.
Cost as a percentage of Revenue
|Q4 2012||Q4 2013||YoY change|
|Cost of revenue||25.1%||19.0%||-6.1%|
|Research & Development||18.7%||15.8%||-3.0%|
|Selling & Marketing||12.2%||11.3%||-0.9%|
|General & Administrative||11.0%||10.1%||-0.9%|
|Total Costs & Expenses||67.0%||56.2%||-10.8%|
The Q4 2013 performance of Facebook is summarized in the table below.
Facebook Q4 2013 performance
|Q4 2012||Q4 2013||YoY change|
|Revenue ($ in millions)||1,585||2,585||63.1%|
|Operating Profit ($ in millions)||523||1,133||116.6%|
|Net Income ($ in millions)||64||523||717.2%|
|GAAP Earnings ($)||0.03||0.20||696.0%|
|Non-GAAP Earnings ($)||0.17||0.30||79.4%|
The company saw a 79% growth in earnings, which was a net effect of revenue growth and margin expansion.
Actual performance v/s analyst estimates
|Earnings surprise||Consensus estimate||Actual||Beat %|
|Revenue ($ in millions)||2,330||2,585||10.9%|
|Non-GAAP Earnings ($)||0.27||0.31||14.8%|
The company came out on top of analyst’s consensus estimates for both revenue and earnings. According to Streetinsider.com, analyst consensus estimate was revenue of $2.33 billion and earnings of 31 27 cents per share, both of which were comfortably topped by the actual numbers from Facebook.
The quarter saw growth in topline as well as bottom line. Mobile monetization and increase in mobile revenue will continue to drive revenue growth at Facebook over the coming quarters. The company will also see margin expansions as a result of higher revenue per user, mainly from the mobile platform. Add the potential of video advertising and Instagram monetization, and Facebook could grow rapidly even from where it is today. While the current valuation (PE ratio of 106 at current pre-market price of $63) is significantly high, FB stock classifies as a calculated risk considering the huge growth potential which lies ahead. While a value investor will likely stay away at the current valuations, for an investor who follows the Peter-Lynch philosophy of GARP (Growth at reasonable price), Facebook deserves your second glance (in-depth). View our Facebook stock analysis.
To see Facebook’s latest stock price movement, click here (NASDAQ:FB)