Facebook: Should Investors Worry About This?

Facebook (FB) delivered eye-popping results for the third quarter 2015. The quarter saw a solid rise of 41% in revenue to $4.5 billion from $3.2 billion for the third quarter, 2014, driven by 45% increase in advertisement revenue through mobile from the third quarter, 2014.

Expenses are increasing due to growth

In addition, the total Non-GAAP expenses, excluding the expenses related to share based compensation, payroll tax expense and amortization of intangible expense from the GAAP expenses went up to $2.1 billion from $1.4 billion for the same quarter, last year.

The total GAAP expenses went up to $3.0 billion from $1.8 billion for the same quarter, last year, driven by the increase in cost of revenue to $720 million from $565 million for the third quarter, last year, increase in research and development expense to $1.2 billion from $508 million for the third quarter, 2014, increase in marketing and sales expenses to $706 million from $374 million for the third quarter, last year, and by the increase in general and administrative expenses to $345 million from $259 million for the third quarter, 2014.

Impressive growth

Moving ahead, the income from operations scaled up to $2.4 billion from $1.8 billion for the third quarter, previous year.
Furthermore, the operating margin went down to 54% from 57% for the third quarter, 2014. Additionally, net income rose to $1.6 billion from net income of $1.1 billion for the third quarter, previous year.

Facebook generated Diluted Earnings per share of $0.57 compared to $0.43 for the third quarter, 2014.

On the basis of geography, the revenue from United States and Canada went up to $2.3 billion from $1.5 billion for the same quarter, 2014. The revenue from Europe scaled up to $1.1 billion from $844 million for the same quarter, last year. The revenue from Asia-Pacific scaled up to $709 million from $492 million for the same quarter, 2014 and the revenue from Rest of World increased to $451 million from $353 million for the third quarter, previous year.

The advertisement revenue on the basis of user geography went up to $4.3 billion from $2.9 billion for the third quarter, 2014, driven by the increase in advertisement revenue from United States and Canada to $2.1 billion from $1.4 billion for the third quarter, last year, by the increase in advertisement revenue from Europe to $1.0 billion from $783 million for the third quarter, last year, by the increase in advertisement revenue from Asia-Pacific to $694 million from $469 million for the third quarter, 2014, and by the increase in advertisement revenue from Rest of World to $444 million from $343 million for the third quarter, 2014.

Furthermore, the Daily active users went up to $1.0 billion from $864 million for the third quarter, 2014. The Mobile Active Daily users went up to $894 million from $703 million for the third quarter, last year. The Monthly Active users scaled up to $1.5 billion from $1.3 billion for the third quarter, 2014.

The product is improving

Facebook has introduced a new app named “Notify”, which will be delivering the timely notifications to us about the things which matters to us, from the sources we love, and all in one place.

In addition, Facebook has introduced “Search FYI”, helping the customers in finding the important topics globally of discussion.

Financially strong

The cash flow from operating activities went up to $2.2 billion from $1.2 billion for the third quarter, 2014. The cash flow in investing activities was of $3.3 billion against the cash flow from investing activities of $2.9 billion for the third quarter, 2014. Further, the cash flow from financing activities fell to $315 million from $438 million for the third quarter, 2014.  Facebooks’s free cash flow for the quarter went up to $1.4 billion from $766 million for the third quarter, 2014.

Conclusion

To wrap up, Facebook posted impressive results for the third quarter, 2015. The quarter posted increased revenue, driven by mobile advertisement, increase in net income, and increase in Diluted earnings per share to $0.57 from $0.43 for the third quarter, 2014. The forward P/E ratio indicated company’s future growth and has PEG ratio of 1.66.

Looking forward, Facebook will continue to remain focused on increasing the number of persons using its services, growing the advertiser demand and on improving the quality of its ads.
Published on Dec 17, 2015
By Vinay Singh

Copyrighted 2016. Content published with author's permission.

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