3 Takeaways From Facebook’s Recent Earnings Report

Let’s take a closer look at the recent quarterly earnings report of Facebook and examine the company’s strong points and one weak point that could impede Facebook’s progress in the near future.

May 4, 2014 at 2:00PM

Facebook's (NASDAQ:FB) first-quarter earnings report was released last week, and it beat analysts' expectations. The main improvement Facebook showed involved a staggering rise in mobile, as explained in a recent Fool article. This leap, however, wasn't the only improvement the company had last quarter. To explore the driving force behind Facebook's growth in earnings, below are three charts that show how well the company has done in the past quarter. One of them, however, also suggests the company's growth could curb in the coming quarters.  

It starts with mobile
The company's mobile usage had a dramatic rise in the first quarter -- a 43% jump in daily mobile users, year-over-year. Moreover, the company's advertising revenue spiked by 82%. The main takeaway here is that Facebook found a way to make a hefty profit from mobile -- an accomplishment that not too many Internet companies were able to reach.  

According to Facebook's CFO, David Ebersman, who plans to leave the company in September, the rise in mobile use resulted in a 17% drop in Facebook's ad impressions (mobile doesn't have rail ads). Moreover, other online companies such as Google (NASDAQ:GOOG) recorded a decline in operating profit from 29% in the first quarter of 2013 to 26.7% in the first quarter of 2014. One reason for the decline in profitability was the rise in mobile use. The company's 9% fall in cost-per-click is partly related to higher mobile usage in the past quarter year-over-year. 

Conversely, Facebook's operating profitability grew by 43% year-over-year. Further, the company's net earnings per monthly active user, or MAU, steadily rose over the past several quarters, as indicated in the chart below. 

Fb Net Profit Per Mau

Source: TechCrunch 

This means Facebook made more money from its users in recent quarters. The rise in mobile use is also related to the improved engagement in the past quarter. 

Better engagement
One reason for the rise in profitability was the improved engagement from the company's users. The chart below shows changes in user engagement, which is calculated as the percent of daily active users, or DAUs, from total MAUs. 

User Eng Fb

Source: TechCrunch 

The company's user engagement steadily grew and reached nearly 63% in the first quarter of 2014. If the engagement keeps rising, a higher number of users will become active on a daily basis, which could improve Facebook's revenue. The revenue from ads per MAU slipped by 7% sequentially, but spiked by 57% from the same quarter last year. One of the factors behind the modest decline (quarter-over-quarter) in revenue per user is the rise in Asia's part from total revenue.  

Roaring Asia
Despite these positive results, investors should notice the potential slowdown in the growth of users in the U.S and Canada, a geographical segment that accounts for roughly 47% of total revenue. 

From the chart below, the company's average revenue per user, or ARPU, in U.S and Canada grew by 67% year-over-year. But, this metric declined by 3% quarter-over-quarter. At the same time, Facebook's DAUs in the U.S and Canada dropped from nearly 21% in the first quarter of 2013 to 18.7% in the recent quarter. The main reason for this fall was the rise in users in Asia. This region's DAU share grew by nearly 2 percentage points to 27% in the past quarter. Despite this rise, Asia still accounts for a small portion of Facebook's total revenue at 14.1%. Asia's ARPU is very low at only $0.93, so if the region keeps expanding, this could eventually reduce Facebook's profitability. 

Arpu Fb

Source: TechCrunch 

Bottom line
Facebook has outdone itself and managed to increase revenue and improve profit margins by expanding its user base and turning customers into daily users. But, as Facebook further extends its reach into Asia, the company's profit margin could start to come down.  

Your credit card may soon be completely worthless
The plastic in your wallet is about to go the way of the typewriter, the VCR, and the 8-track tape player. When it does, a handful of investors could stand to get very rich. You can join them -- but you must act now. An eye-opening new presentation reveals the full story on why your credit card is about to be worthless -- and highlights one little-known company sitting at the epicenter of an earth-shaking movement that could hand early investors the kind of profits we haven't seen since the dot-com days. Click here to watch this stunning video.


Lior Cohen has no position in any stocks mentioned. The Motley Fool owns shares of Facebook and Google (C shares). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information