Is Facebook Worth Investing In?

Facebook (FB) announced second quarter ended June 30, 2016 total revenue of $6.44 billion, up 20 percent sequentially from $5.38 billion in first quarter of 2016 and an increase of 59 percent year-over-year from $4.04 billion in second quarter of 2015.

Facebook declared second quarter of 2016 non-GAAP net income of $2.82 billion or $0.97 per diluted share, up 27 percent sequentially from $2.23 billion or $0.77 per diluted share in first quarter of 2016 and an increase of 96 percent year-over-year from $1.44 billion or $0.50 per diluted share in second quarter of 2015.

The global social networking company reported continued and significant sequential and year-over-year improvements in both its top line and bottom line primarily driven by notable global growth in the company’s total number of users and revenue generated per user.

Facebook has consistently grown its top line over the years being primarily contributed by an impressive improvement in average revenue per user (ARPU) both sequentially and year-over-year due to a robust expansion in the company’s online user base worldwide.

The social networking giant seems keen on improving its bottom line growth through strategic growth investments and targeting high-growth opportunities.

The ongoing significant expansion in Facebook’s top and bottom lines signifies attractive company’s cost structure that enables it to pursue higher growth opportunities while delivering attractive and sustainable long-term shareholder returns.

Financial prudence  

Facebook is uniquely controlling its overall expenses as a percentage of the top line including, cost of revenue, research and development expenditures, marketing and sales and general and administrative expenses considering the continuing slowdown in the global economic conditions which has encouraged the company to enhance its year-over-year capital investments particularly, $995 million of second quarter of 2016 capital investments performed for the purchase of equipment and property, up 81 percent year-over-year from $549 million of core capital investments made during the same period last year.

Further, Facebook has also significantly grown its total capital investments for the complete fiscal year 2015 to $2.52 billion, up 38 percent year-over-year from $1.83 billion of net capital investments in 2014.

Facebook successfully and sequentially grew the number of daily active users (DAUs) for second quarter of 2016 by 3.5 percent to 1.13 billion compared to 1.09 billion in first quarter of 2016 and an increase of 16.5 percent year-over-year from 968 million DAUs in second quarter of 2015.

Further, the number of mobile daily active users (mobile DAUs) for second quarter of 2016 was recorded at 1.03 billion, up 4.4 percent sequentially from 989 million DAUs in first quarter of 2016 and an increase of 22.4 percent year-over-year from 844 million in second quarter of 2015.

The well-planned capital investments of Facebook in expanding its services and making its presence across the globe has primarily led to notable expansion in the number of DAUs and mobile DAUs both sequentially and year-over-year.

Growing in the right areas    

Facebook is consistently growing the number of monthly active users (MAUs) across the globe including, US & Canada, Europe, Asia-Pacific and rest of the world with 3.5 percent sequential and 15 percent year-over-year growths.
The mobile MAUs grew 4.4 percent sequentially and 20 percent year-over-year to a consolidated 1574 mobile MAUs in second quarter of 2016.

Going forward, Facebook is believed to have significant scale to grow with the strategic acquisitions of Oculus VR, Instagram and its key mobile-messaging platforms. Moreover, Facebook is expected to have uniquely and notably monetized its large set of mobile users.

The ongoing sequential and year-over-year improvements in Facebook’s total number of MAUs, mobile MAUs and mobile-only MAUs is primarily a result of well-planned technology acquisitions to enhance the company’s already robust portfolio of online services while consistently offering attractive shareholder returns.


Overall, the investors are advised to “Buy” equity in Facebook, Inc. considering the company’s significant near-term and longer term growth prospects with impressive growth efforts being supported by a solid balance sheet with significant total cash of $23.29 billion. The profit margin of 27.18% also seems impressive. However, the PEG ratio of 0.89 appears misguiding and depicts weaker company growth.
Published on Aug 16, 2016
By Vinay Singh

Copyrighted 2016. Content published with author's permission.

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