Facebook Reports Earnings, Sort of

The awe-inspiring Facebook IPO is still in the pipeline, which is reportedly targeting May 17 as the fateful day. With less than a month to go before what promises to be the mother of all IPOs, the social-networking kingpin has put up first-quarter earnings.

Now, this isn't your usual fare of press releases and 10-Q filings, mind you. We're looking at an amended S-1 registration statement that the company has recently filed with the SEC. Facebook has updated the document to include its first-quarter results as well as a few other interesting tidbits.

First things first
Here's how Facebook's first quarter stacks up with the same quarter a year ago.

Metric

Q1 2011

Q1 2012

Revenue

$731 million

$1.06 billion

Operating income

$388 million

$381 million

Net income

$233 million

$205 million

Diluted EPS

$0.11

$0.09

Source: Amended S-1 registration statement filed April 23.

Revenue jumped 45% to $1.06 billion, although the main reason why operating and net incomes were slightly lower was that marketing and research and development expenses jumped. Marketing costs rose from $68 million to $159 million, while R&D increased from $57 million to $153 million.

As far as the revenue breakdown is concerned, advertising actually ticked lower as a percentage of total revenue. A year ago, advertising comprised 87% of sales, while this quarter it was 82%. That doesn't mean Facebook is any less of a threat to Google (Nasdaq: GOOG  ) , as ad sales still grew by 37% as Netizens continue to spend more time Facebooking -- which competes with the time they spend Googling.

A trial separation might be good for us
Zynga
(Nasdaq: ZNGA  ) and Facebook are still rather cozy, even though the two are entwined in a loveless marriage. In the first quarter, Zynga was responsible for 11% of Facebook's revenue, compared to 12% for all of last year. In addition to that chunk, Zynga's apps generate pages where Facebook displays ads from other advertisers, meaning that Zynga was indirectly responsible for another 4% of revenue.

Facebook has updated its risk factors related to Zynga to reflect the threat that Zynga's new gaming platform represents, adding, "Zynga may choose to try to migrate users from existing Facebook-integrated games to other websites or platforms."

It's no secret that Zynga is making a big push into mobile platforms such as Android and Apple (Nasdaq: AAPL  ) iOS, even if that means buying its way to the top of the iOS App Store charts.

901 million and counting
Facebook has reached another milestone with its user base. The company now boasts 901 million total monthly active users, or MAUs, up from 845 million last quarter and 680 million a year ago -- a 33% year-over-year increase. Daily active users, or DAUs, rose 41% to 526 million.

Emerging markets drove user growth. Facebook's Asia and rest of world geographical segments saw MAU gains of 47% and 50%, respectively, compared to the 15% and 20% respective MAU growth in the U.S./Canada and Europe regions.

Facebook "likes" when you go out drinking
There were an average of 3.2 billion "likes" and comments per day during the quarter, up from 2.7 billion seen in the prior quarter. Facebook uses these as a proxy for engagement, which it in turn uses to pitch ad sales; so every time you "like" that embarrassing picture of you making a fool (lowercase "f") of yourself at the bar last night, you're incrementally helping Facebook's ability to monetize you.

There are 488 million MAUs for Facebook's mobile products, which primarily consist of its Android and iOS offerings. Mobile growth is a major hurdle for Facebook in terms of monetization, but last month the company began including sponsored stories in mobile news feeds. Mobile product revenue still isn't "meaningful" quite yet, but it's a start.

Deal maker extraordinaire
A couple notable deals were also mentioned, including the $1 billion acquisition of social photo sharing service Instagram. The deal includes $300 million cash and 23 million shares of stock. If this deal falls through for some reason, Facebook is on the hook for a $200 million termination fee.

Facebook is also buying roughly 650 of the AOL (NYSE: AOL  ) patents that Microsoft (Nasdaq: MSFT  ) just bought. Just this month, the software giant paid up more than $1 billion for the IP, and it's now turning around and selling a chunk of those AOL patents to Facebook for $550 million, which will license them back to Mr. Softy.

A tall order to fill
Facebook now sports trailing-12-month net income of $974 million, meaning that it will be trading at more than 100 times earnings at the estimated $100 billion valuation that it's expected to fetch. That's a lofty valuation, but in fairness Facebook is socially disrupting the way we interact with the Internet while putting up 45% top-line growth in the process.

It might be worth it, after all.

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Fool contributor Evan Niu owns shares of Apple, but he holds no other position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool owns shares of Microsoft and Google. The Fool owns shares of Apple. Motley Fool newsletter services have recommended buying shares of Google, Apple, and Microsoft. Motley Fool newsletter services have recommended creating a bull call spread position in Microsoft. Motley Fool newsletter services have recommended creating a bull call spread position in Apple. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


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