Facebook (NASDAQ:FB), a social media giant, made a lot of progress in the first quarter. It grew its community in size and engagement, with about 1.3 billion people now using Facebook every month. It reached new milestones as a mobile company. It had more than one billion actives.
The Apps Ecosystem
Facebook is focused on efforts that it believes will help toward making a further progress in the long term. It reached agreements to acquire WhatsApp and Oculus, and it has announced its new Connectivity Lab. Facebook’s acquisitions have a lot of room to grow. They will be important businesses in the future. The company’s next set of apps like Messenger, Paper and Instagram are at different stages of their maturity. Facebook is working hard to develop the technical foundation of these services so they can launch new products.
What Is Facebook’s Potential
Maybe a way to value Facebook is to look at the sum of its part because of the strength of of its segments. This technique entails valuing the company's segments and then combining them for a total worth.
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- FB 15-Year Financial Data
- The intrinsic value of FB
- Peter Lynch Chart of FB
On desktop, games continue to be popular on Facebook. In the last 12 months, desktop game developers generated more than $3 billion in payment volumes. The segment’s ad revenue in the first quarter was up 8% compared to the same period a year ago. The average effective price per ad displayed increased 118% on a year-over-year basis.
Facebook’s Total Payments and Other Fees revenue was $237 million, up 11% versus the first quarter in 2013. The payment volumes from games went up 1% in Facebook’s 2014 first quarter.
The company’s mobile revenue comprised 50% of Facebook’s ad revenue in the first quarter, up 6% from the quarter four revenue. App installs have been one of Facebook’s best-performing ad products, driving over 350 million in installs to date. Over 60% of the top grossing apps on the Apple Store and Google Play use Facebook’s Mobile Ads.
The Real Value
In the first quarter, Facebook’s total revenue grew 72% on a year-on-year basis. The company’s advertising revenue grew 82%, its strongest growth rate in nearly three years. Facebook’s operating income was $1.1 billion, representing a 43% operating margin. The company ended quarter one with $12.6 billion in cash and investments.
Google (NASDAQ:GOOG), another Internet information provider, is a chief competitor. The company is prominent on Wall Street, with a significant majority of analysts rating it a buy.
In its latest quarter, the company’s operating income was $4.12 billion. This compares to an operating income of $3.75 billion in the first quarter of 2013. Google’s net income was $3.45 billion, compared to $3.35 billion in the first quarter of a year ago.
Twitter (NYSE:TWTR) continued to improve its experience for new and existing users by enhancing push notifications. It allowed users to link their mobile address book with their Twitter accounts and expanded its global media partnerships with Kantar, GfK and Nielsen.
In the first quarter, its revenue totaled $250 million, an increase of 119% compared to $114 million in the same period last year. Its advertising revenue totaled $226 million, an increase of 125% on a year-over-year basis. The company projected its second-quarter revenue to be in the range of $270 million to $280 million.
Facebook has remade itself into a giant in the mobile sector. Internationally, Mondelez announced a global strategic partnership with Facebook to shift more media spending to digital platforms across the entire consumer journey. Given the performance of Facebook’s segments, it provides a great value to investors. Facebook’s Messenger and Instagram both reached 200 million monthly actives this quarter. These segments could be significant revenue drivers going forward. With such potential, Facebook is a firm investors should have in their portfolio.