Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



3 Takeaways From Facebook’s Recent Earnings Report

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. 

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. 

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. 

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.


Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2931987, ~/Articles/ArticleHandler.aspx, 9/4/2015 3:01:11 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Lior Cohen

Lior has been a contributor for the Fool since 2012. His main interests are in commodities, and energy and materials companies.You can follow him on Twitter to stay up to date with his industry analysis. @tradingnrg

Today's Market

updated Moments ago Sponsored by:
DOW 16,055.46 -319.30 -1.95%
S&P 500 1,917.23 -33.90 -1.74%
NASD 4,667.51 -65.98 -1.39%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/4/2015 2:44 PM
FB $87.23 Down -0.92 -1.04%
Facebook CAPS Rating: ***
GOOG $600.39 Down -5.87 -0.97%
Google (C shares) CAPS Rating: ****