Strong numbers
Facebook’s growth in its user base has been very healthy with global MAUs increasing 23% Y/Y to 1.11 billion. And more than 665 million users get on Facebook Inc (NASDAQ:FB)’s platform every day. Since its IPO one of the major positives behind the Facebook story has been the growth of its mobile user base and monetization.
In the last quarter, Facebook’s revenues stood at $1.46 billion which was a 38% Y/Y increase. The company’s operating income margin for 1Q13 stood at 26% and its net income margin stood at 15%. Facebook Inc (NASDAQ:FB)’s advertising revenues are crucial for the company, and make up roughly 85% of total revenues. Advertising revenues stood at $1.25 billion, which is a 43% Y/Y increase.
The growth in Facebook’s advertising revenues in the last quarter was largely attributable to a 39% rise in the number of ads shown, coupled with a 3% increase in the price per ad. Facebook’s management did state that the company is showing more ads on the News Feed, which commands a much higher price, and thus fueled Facebook’s growth engine. Facebook Inc (NASDAQ:FB) has been able to increase the price per ad, whereas competing Internet firms like Google Inc (NASDAQ:GOOG) and Yahoo! Inc. (NASDAQ:YHOO) are seeing lower prices per ad.
Mobile growth is crucial
In the last quarter, Facebook’s mobile advertising revenues stood at roughly $374 million in 1Q13. However, Facebook’s desktop revenue didn’t grow and was flat Y/Y at $871 million. Many advertisers are platform agnostic, and often choose to reach consumers through mobile devices due to increased usage. The company now has 751 million mobile users, which represents a 54% increase from the previous year.
Driven by its massive popularity and usage on mobile devices, Facebook Inc (NASDAQ:FB)’s annualized mobile monetization saw big increases. In 1Q13, mobile advertising contributed $1.5 billion in annualized revenue run-rate, which is a sizable increase from the last quarter of 2012, when the mobile revenue run-rate stood at $1.2 billion. And investors and analysts are expecting Facebook to increase its mobile ad revenue to as much as $475 million or roughly $1.9 billion annualized. Facebook Inc (NASDAQ:FB)’s mobile monetization is only behind Google Inc (NASDAQ:GOOG). Google earns in excess of $8 billion annually mostly from mobile ads.
Secular consumer trends towards mobile might impact Facebook’s earnings from Payments and Fees, but the segment did grow its revenues by 15% Y/Y to $213 million in 1Q13. However, Facebook’s revenues from Payments might face more headwinds as most of the revenues are booked on PCs.
Facebook’s wildly popular mobile app, Instagram gives the company an edge in terms of enhancing user engagement and providing a better user experience on mobile. Instagram’s user base crossed more than 130 million users, and the company is yet to monetize its audience with ads on videos and photos. Instagram’s platform is thriving with user engagement as member likes reached more than 1 billion a day.
Rising social media companies
Facebook is increasingly competing with a number of younger and slightly different social media companies. The relatively newer social platforms like Yahoo! Inc. (NASDAQ:YHOO)’s Tumblr, Pinterest, Twitter, Snapchat etc. are all gaining momentum in terms of signing of newer users and keeping them engaged. However, Facebook’s user engagement is at very high levels. The number of daily users using Facebook on a daily basis has hit 60% which is much higher than earlier levels.
Earnings Consensus
Facebook is trading at high P/E multiples, and the company’s earnings miss or hit can lead to a lot of volatility in the stock price. The sell-side estimates for 2Q13 have an EPS consensus of $0.14, on revenues of $1.62 billion. Worth noting, Facebook is investing heavily for the long-haul, which might lead to margin compression in the next few quarters as well.
Going Forward
The company’s management is focused on building the company’s business for long-term growth. And the company has a number of untapped growth drivers to generate incremental revenue. The company’s Graph Search is still in the early innings and might drive revenues in the long-term. And also Facebook was the second most popular video platform in the U.S. with more than 61 million users, and only lagged Google Inc (NASDAQ:GOOG)’s video properties, which had more than 158 million viewers in June, according to comScore.
Facebook also has more than 16 million small business pages that it is monetizing, a great way to drive revenues from smaller businesses. The company now has more than 1 million advertisers on its platform, and those advertisers are likely to start showing video ads on Facebook’s News feed in the latter half of 2013. Facebook Inc (NASDAQ:FB) has a number of unrealized revenue streams that are likely to open up in the long-run and drive the company’s fortunes, independent of the company’s quarterly performance.
The article Facebook Earnings: Can Growth Persist? originally appeared on Fool.com and is written by Ishfaque Faruk.
Ishfaque Faruk has no position in any stocks mentioned. The Motley Fool recommends Facebook and Google. The Motley Fool owns shares of Facebook Inc (NASDAQ:FB) and Google Inc (NASDAQ:GOOG). Ishfaque is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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