Facebook Soars Above Earnings, User, and Revenue Forecasts

Revenue jumped 56% Y-o-Y to $7 billion; advertising revenue grew 59% Y-o-Y to $6.81 billion

f1Social media giant Facebook Inc. (NASDAQ: FB) announced its Q3 FY16 financial results on November 2nd, 2016.

The Menlo Park, California-based company builds products that enable people to connect and share through mobile devices and personal computers. The Company enables people to share their opinions, ideas, photos and videos, and other activities. The Company’s products include Facebook, Instagram, Messenger, WhatsApp, and Oculus. The Company has approximately 930 million daily active users (DAUs) who access Facebook from a mobile device.

Facebook’s subsidiaries include Andale Inc., Edge Network Services Limited, Facebook Ireland Holdings Limited, Facebook Ireland Limited, Facebook Operations LLC, Instagram LLC, Oculus VR LLC, Parse LLC, Pinnacle Sweden AB, Siculus LLC, Vitesse LLC, and WhatsApp Inc. Read more about Facebook’s financial results below.

Q3 FY16 financial highlights

During Q3 FY16, Facebook’s total revenue jumped 56% Y-o-Y to $7 billion, of which advertising revenue grew 59% Y-o-Y to $6.81 billion, while payments and other fees declined 3% to $195 million. Mobile advertising revenue represented approximately 84% of total advertising revenue during the reporting quarter, up from approximately 78% of advertising revenue in the year-ago period. As a result, Facebook earned $5.7 billion of its total $6.81 billion in ad revenue on mobile ads alone. Facebook is the second largest ad publisher globally, behind technology major Alphabet Inc.’s (NASDAQ: GOOG) Google, as per eMarketer. Facebook also made efforts to stop desktop ad blockers, resulting in an 18% rise in desktop ad revenue.

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Facebook’s investment and focus on video showed strong returns, with viewership increases, and allowing Facebook to weave high-priced video ads into the feeds. This in turn drove Facebook’s 9.1% average revenue per user (ARPU) in the U.S. and Canada during Q3 FY16.

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During the reporting quarter, daily active users (DAUs) grew 17% Y-o-Y to 1.18 billion on average for September 2016. Mobile DAUs jumped 22% Y-o-Y to 1.09 billion on average for September 2016.

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Monthly active users (MAUs) grew 16% Y-o-Y to 1.79 billion, while mobile MAUs jumped 20% Y-o-Y to 1.66 billion as of September 30th, 2016.

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Facebook also reached a new milestone when it revealed that two-thirds of Facebook users, or 66%, get news on the site, according to the Pew Research Center, up from 47% in 2013. In all, Facebook clocked a whopping 166% rise in net income to $2.39 billion, or diluted EPS of $0.82, versus $896 million, or diluted EPS of $0.31, in the year-ago period. Capital expenditures for the reporting quarter were $1.10 billion. The Company had cash and cash equivalents of $26.14 billion at the end of Q3 FY16.

Segmental highlights

Facebook notched major milestones, reaching 1 billion monthly users on messaging apps WhatsApp and Messenger, and 500 million monthly Instagram users. Messenger also reported 33,000 live bots. During the reporting quarter, Facebook launched Messenger Lite, which is designed to make messaging fast and easy with a wide variety of Android phones, and for people who are on slower networks as well.

During Q3 FY16, Facebook launched Workplace to help make organizations more connected and productive. Workplace is a communications platform that uses features like News Feed, Groups and Messages to help people collaborate and share at work. More than 1,000 organizations are using Workplace including Starbucks, Royal Bank of Scotland and Danone.

Other highlights

Innovations: Facebook’s innovation roadmap includes three areas: connectivity, artificial intelligence, and virtual and augmented reality.

Through its efforts with Internet.org, Facebook connected 40 million people, up from 15 million a year ago. Facebook’s Express Wi-Fi program empowers entrepreneurs to build a business by providing their community with access to the internet. Facebook’s “Register to Vote” link helped more than 2 million people register to vote, some for the first time.

On artificial intelligence, Facebook has over 40 teams, and about 25% of its engineers, using AI to power the products and services they build. At Oculus Connect, Facebook announced that Touch controllers for Rift will ship in early December with 35 games and experiences exclusively built for Touch.

Pacific Light Cable: On October 12th, 2016, Facebook announced that it is f8teaming up with Google to co-invest in a project to build a 120 terabits per second (Tbps) submarine cable that will connect Los Angeles, California, and Tseung Kwan O, Hong Kong. The two tech majors are working with Hong Kong-based Pacific Light Data Communication Company, a wholly owned subsidiary of China Soft Power Technology. The 12,800-kilometer Pacific Light Cable Network would use fiber-optic technology to support the region’s highest-capacity route, according to TE Subcom, the U.S. subsidiary of Swiss technology supplier TE Connectivity Ltd., which has been roped in to build the link. The new cable, which is expected to be launched in 2018, will be the highest capacity trans-Pacific cable, a record that is now held by the FASTER cable.

The construction cost of the new Pacific Light Cable Network would be about $400 million. For Facebook, the new cable is expected to enable faster internet connections with less lag and greater bandwidth to its users in the Asia/Pacific region, especially with rising demand for data-heavy video streaming. The new bandwidth could accommodate 80 million simultaneous high-definition video calls between the two regions. In addition to building its own undersea cable, Facebook is also investing in buying “dark fiber”, a term used for unused terrestrial cables, to move data more efficiently.

Facebook, Microsoft team up for trans-Atlantic cable: In May 2016, Facebook andf9 Microsoft Corp. (NASDAQ: MSFT) teamed up to build a new trans-Atlantic cable with Spanish telecom provider Telefonica S.A. that connects Bilbao in Spain to Virginia in the U.S. Dubbed Marea, the 6,600-kilometer-long cable has a capacity of 160 Tbps, even faster than the Pacific Light cable. This bandwidth would allow Facebook to efficiently move enormous amounts of data between data centers and network hubs that support their popular online services.

Launch of Marketplace tool: On October 3rd, 2016, Facebook announced the launch of its Marketplace tool in its latest e-commerce push. More than 450 million people already visit Facebook groups that have items to buy and sell each month, the company said. With Marketplace, Facebook is now giving users a more formal process to conduct these exchanges. The Marketplace icon will now appear at the bottom of the screen on the Facebook mobile app on iOS and Android in four countries: the U.S., the U.K., Australia, and New Zealand. Marketplace is also being tested in Chile. In the future months, Facebook may also invite businesses to join Marketplace, by which time Facebook is also making available the tool on the desktop version. Facebook’s Marketplace tool, which allows users to browse for things, is aimed at keeping people hooked on the company’s mobile app, and in turn driving ad revenues.

Earlier in July 2014, Facebook tested a “Buy” button on browsers and mobile devices that lets users make purchases through advertisements and allows merchants to sell their wares from their Facebook pages. Facebook is also testing a mobile shopping marketplace and shopping from mobile ads. Marketplace is Facebook’s second coming for commerce. In 2007, it introduced a feature, also called Marketplace, which never took off. In late 2014, the company launched For Sale Groups. Marketplace is a much evolved version of For Sale Groups, which does not charge listing or transaction fees and does not process payment or handle delivery, giving it an edge over competing services such as eBay Inc. (NASDAQ: EBAY), Craigslist, and Amazon.com Inc. (NASDAQ: AMZN).

f10Facebook to launch Wi-Fi service in India: Facebook said in August 2016 that it is testing an affordable Wi-Fi service called Express Wi-Fi in rural India, allowing users to buy data packages from local internet service providers (ISPs) to access the internet via local hotspots. Facebook is currently in the early stages of testing Express Wi-Fi with multiple local ISP partners and has completed a pilot roll out of 125 rural public Wi-Fi hotspots in a tie-up with the state-run internet provider.

Outlook for full year FY16

Despite the successful quarter, Facebook’s share price sank 5.64% at the close on Thursday, November 3rd, 2016, versus an all-time high of $133.50 by end October 2016. This was due to comments from CFO David Wehner, who reiterated that Facebook is approaching maximum ad load, and hence will not be able to increase the number of ads it shows any more. As a result, Facebook expects a drop in ad revenue growth rates in the coming months.

Stock Performance

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Facebook’s stock finished the day at $120.00, plunging 5.64%, at the close on Thursday, November 3rd, 2016, having vacillated between an intraday high of $123.28 and a low of $119.50 during the session. The stock’s trading volume was at 63,533,385 for the day. The Company’s market cap was at $347.89 billion as of Thursday’s close.

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