Facebook (FB, Financial), being the world's No.1 social network with 1.2 billion users, generates the majority of its revenue by showing ads that target users by age, gender and other traits. People use FB as a medium to stay connected with friends and family, to discover what is going on in the world around them, and to share and express what matters to them to the people they care about. Developers can use the Facebook platform to build applications and websites that integrate with FB to reach its global network of users and to build personalized and social products.
Going by the numbers
Revenue for the second quarter 2014 totaled $2.91 billion, an increase of 61%, compared with $1.81 billion in the second quarter of 2013. Excluding the impact of year-over-year changes in foreign exchange rates, revenue would have increased by 59%. Revenue from advertising was $2.68 billion, a 67% increase from the same quarter last year. Excluding the impact of year-over-year changes in foreign exchange rates, revenue from advertising would have increased by 65%. Mobile advertising revenue represented approximately 62%of advertising revenue for the second quarter of 2014, up from approximately 41% of advertising revenue in the second quarter of 2013. Payments and other fees revenue was $234 million, a 9% increase from the same quarter last year.
For the second quarter of 2014, GAAP net income was $791 million, up 138% compared to $333 million for the second quarter of 2013. Excluding share-based compensation and related payroll tax expenses and income tax adjustments, non-GAAP net income for the second quarter of 2014 was $1.09 billion,
124% compared to $488 million for the second quarter of 2013. GAAP diluted EPS was $0.30 in the second quarter of 2014, up 131% compared to $0.13 in the second quarter of 2013.Excluding share-based compensation and related payroll tax expenses and income tax adjustments, non-GAAP diluted EPS for the second quarter of 2014 was $0.42, up 121% compared to $0.19 in the second quarter of 2013. (Source: company’s website)
Launch of app slingshot
FB recently launched a photo messaging app called Slingshot. This app enables sharing photos and videos with friends and family including reaction shots. Once the image is sent, it gets deleted. Users are not needed to have an FB account to use this app. This app is specially designed for social media content creators. The app can be accessed through a mobile phone number. Around 76% of FB users access FB via mobile devices.
Growing trend
FB has a vast array of growth opportunities that have discovered. In the near future, the company will roll out video advertisements for U.S. users. This can be rolled out internationally over the coming years.
FB currently has huge investment plans that include maintaining data servers to keep up with a growing user base. The company has already spent $595 million in 2013. In the short term, this can lower margins, but an increased investment is a positive aspect as the company continues to expand internationally and gain new users.
Final thoughts
FB increased its core user base by 170 million in 2013. FB’s shares have risen by roughly 30% in 2014 alone, further dispelling investor concerns that had plagued the stock in 2012. The growing digital advertising market, the increasing share of mobile in the mix, the attractive potential for return on investment for businesses advertising on FB, and the company’s investments in optimizing and evolving its ad strategy are some of the factors that have fueled its increased valuation. More than 25 million small businesses get to advertise on FB now. As a result, the company has witnessed a massive increase in its average ad pricing in recent quarters.
FB has more than 1 billion users and is still growing this number above 20% year over year. The massive amount of data that the company has already collected (and it continues to collect) from the billion-plus users will be an extremely crucial asset that can be utilized in various ways to generate revenue. The future remains bright for FB, and more good news for the stock can be the company's inclusion within the S&P 500 index. The company conforms to the guidelines for inclusion as FB is a well established leader within the advertising space.
FB's acumen for remaining ahead of others in evolving its platform, shrewd acquisitions, and using acquisitions to develop and evolve its platform make it the perfect market leader. The stock has more upside attached to it as compared to other similar stocks.
