Facebook (FB, Financial) reported blowout fourth-quarter earnings, beating estimates on the revenue as well as earnings front. The world’s largest social media platform posted earnings per share of $1.41 on the back of $8.81 billion in revenues while Wall Street was expecting $1.31 in earnings per share and revenues of $8.51 billion.
Facebook’s chief financial officer (CFO) warned about ad load during the third-quarter earnings call in an attempt to lower the sky-high expectations about revenue growth, but a slowdown seems to be a mile away because Facebook improved its numbers on almost all the metrics that matter.
For Facebook, the two key metrics are user base growth and average revenue per user because its revenue growth is directly proportionate to the cumulative expansion of these two metrics. During the fourth quarter Facebook’s monthly active user (MAU) base increased by 17% compared to the prior period.
Global ARPU increased an eye-popping 29.4% during the quarter to reach $4.83, compared to the $3.73 Facebook reported in fourth-quarter 2015. The ad load factor will have a direct impact on this metric because there is only a set amount of ads Facebook will be able to show its users at any given time. This strong double-digit growth may not continue forever – and that’s what its CFO was cautioning investors about – but that day seems to be farther down the road than earlier assumed.
Mobile advertising's revenue contribution to Facebook’s overall revenues continues to be on the rise and now accounts for 84% of the company’s revenues compared to an 80% contribution during the fourth quarter of 2015.
Content consumption has been steadily shifting toward mobile devices, and user base growth is also shifting toward emerging markets, but Facebook seems to be more ready to handle that transition than other companies.
On a comparative basis mobile ads cost less than desktop ads, which means Facebook’s cut on the ads is lower as well. Despite that, Facebook is able to expand its revenues at a furious pace with a large portion of the revenue coming from mobile advertising.
On the demographics front, Facebook’s userbase is growing at a much faster rate in Asia Pacific and Rest of the World, and it’s a natural progression due to its penetration levels in these regions compared to developed markets. Facebook’s ARPU increased from $1.6 in fourth-quarter 2015 to $2.07 in Asia Pacific while Rest of the World expanded from $1.10 to $1.41.
The increase may look a bit small compared to the $6.11 increase that the U.S. and Canada witnessed during the period, but the fact that it is able to increase ARPU in developing markets is a huge sign that the company will be able to keep its revenue growth ticking in these regions for a long time.
On the whole it appears that Facebook’s growth runway is still extremely long despite reaching nearly 2 billion people around the world, moving almost completely into the mobile space with still no sign of monetization coming from WhatsApp.
Disclosure: I have no positions in the stock mentioned above and no intention to initiate a position in the next 72 hours.
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