Mobile Growth Drives Facebook Surge

  • Facebook Q4 2015 beat analysts’ estimates for revenues and EPS with flying colors.
  • The company presented record-high revenues, rising 52% YoY, mainly driven by the rapid growth of its mobile business.
  • With extraordinary results and new revenues streams to start generating cash in 2016, investors could be optimistic about Facebook’s stock price.

Facebook (NASDAQ:FB) reported its Q4 2015 results on January 28th, with much higher than expected EPS and revenues figures that triggered a 12% after-hours surge in Facebook stock price. Facebook stock price was down a bit after the impressive performance in 2015 and was trading at around $95 before the call, and now the stock is trading around its all-time high of $112, ready to break out higher.

Facebook reported record-high quarterly revenues of $5.8B, which represent a 52% YoY increase and are almost $0.5B higher than analysts’ consensus estimates. As shown in the chart below, the growth in the mobile advertising segment is the primary catalyst for Facebook’s revenue growth, and in Q4 2015, Facebook reported 57% YoY growth in advertising revenues when mobile ads revenues increased an incredible 82% YoY.

FB_chart 8_012816

Mobile ads revenue growth is driven primarily by a 21% YoY increase in mobile MAU and substantial growth in supplier demand. According to CFO David Wehner, Facebook’s effort to improve targeting and measurement solutions enabled advertisers to achieve better results, which led to more demand for ads and pushed its average prices up by 21%. Facebook was able to increase not only the impressions from every ad and the average price advertisers pay but also, the number of ads users see (in Facebook and Instagram). Overall, this drove mobile advertising revenues up, impacting the entire advertising revenues segment.

FB_chart 9_012816

Besides the growing online advertising business, Facebook is slowly developing new revenue streams in virtual reality, the local business directories of messaging apps WhatsApp and Messenger, and other initiatives. As mentioned in an earlier article, in 2016, Facebook will make its first steps to generate revenues from businesses outside of its comfort zone, in the segments mentioned above, by creating three new ecosystems to monetize these new businesses.

CEO Mark Zuckerberg said in a conference call that Facebook is in the first steps of building the Messenger and WhatsApp ecosystems. The company is trying to create an ideal user experience in each of these apps before they monetize it like Facebook did with its mobile app. That is also true for the Oculus business, in which Facebook will focus on user experience in the gaming industry and, later down the road, will look for additional industries to penetrate.

Facebook outperformed the market consensus on every line item, from MAU to revenues and EPS, and it did it with only one main revenue stream. Looking forward to 2016, optimism is rising as investors see what Facebook still has up its sleeve for the rest of the year. Sell-side shops already issued some buy ratings and boosted price targets to reflect an incredible upside of 30% to 60% on Facebook stock price. As I mentioned in earlier articles, for me, Facebook is a prominent long pick for 2016.

Lior Ronen Lior Ronen   on Amigobulls :
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