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Facebook’s Q2 Results Look Good, And Future Appears Bright

August 22, 2014 | About:

The Californian online social networking firm, Facebook Inc. (NASDAQ:FB), reported its second quarter earnings on July 23, exceeding analysts’ expectations for the eighth straight quarter with $2.91 billion in revenue and earnings per share at $0.42. The company is making inorganic growth the mode to grow larger in the advertising services domain.

Let’s take a brief look at the company’s quarterly report card and assess the acquisitions that are currently on its platter.

The bright revenue numbers say it all

Revenue for the quarter climbed 61% to $2.91 billion from the last year’s corresponding period beating Street estimates of $2.81 billion. The mobile ad revenue that accounted for 62% of the advertising sales grew by a whopping 151% year over year. After the second quarter, the number of monthly mobile users of Facebook stands at 1.07 billion. Overall, the entire advertising sales grew by 67% to $2.7 billion from the year-ago period.

The steep rise in wireless ad sales in the second quarter is in tune with the estimation given by research firm, eMarketer that predicts that mobile ads would account for 68% of Facebook’s U.S. advertising revenue in 2014, an increase from 46.7% in the earlier year.

Facebook continues to grow its community in size and engagement. There are around 1.32 billion people connecting to Facebook every month, and 63% of them visiting it daily. The number of people using Facebook services on the mobile on a daily basis currently stands at 650 million, and is surely testimony to the fact that mobile advertising has contributed vastly to its revenue in the quarter.

Total payments and other fees revenue was also up 9% to $234 million from that reported in the comparable period last year. Organic growth in the payments business was eminent with payment volumes from games going up 1% this quarter when compared year over year. However, as games payments revenue comes entirely from desktop usage and there is a decline being seen in Facebook users on desktop, this change in consumer trend might drag the games payments revenue in the upcoming quarters.

Meanwhile, net income of the company rose to $791 million or $0.30 per share from $333 million or $0.13 per share, a year earlier. Barring some items, the net income stood at $0.42 per share that was above average analysts’ estimate of $0.32 per share.

Cash position is solid

Irrespective of the capital expenditure of nearly $469 million in the second quarter, Facebook generated free cash flow worth $872 million. Facebook ended the quarter with approximately $14 billion in cash and investments.

Acquisitions adding impetus to growth

Facebook accounted for 5.8% of worldwide digital ad revenue in 2013, up from 4.1% in 2012 as per research firm, Emarketer. Worldwide digital spending has risen 14.8% to $120 billion in 2013 and is expected to reach $140 billion by the end of the year.

For capitalizing on such progressive trends, Facebook has been adding to the gamut of its advertising services to tap more tech-savvy consumers globally. Besides rolling out a video-ad product and a network of distributing ads on other developers’ applications, this June, Facebook agreed to acquire a startup named LiveRail – the latter would aid in serving video promotions on the Web and beyond the normal social network.

Back in February, CEO Mark Zuckerberg, also announced to pay about $19 million for WhatsApp Inc., a messaging app having more than half a billion users. Facebook feels that WhatsApp could have close to 1 billion users in a few years, and this estimate is on highly conservative grounds. As WhatsApp can do a lot besides text sharing between individuals, Facebook seems to have invested in the “next- Facebook” to protect its market share in the coming years. The management is confident of completing the acquisition by end of this year.

Also, Facebook recently closed the deal of acquiring Oculus for $2 billion for the virtual reality applications that could help the former to add to its app count and reach out to billions.

Final word

Facebook‘s management is keen to grow inorganically and the recent acquisitions testify its agility. Facebook is looking for every possible opportunity to grow larger, and its second quarter numbers have been solid. There is obviously more to watch out for in the upcoming quarters, so let’s stay tuned.

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