With the specter of News Feed changes and revelations that user information had been misused by an outside company, Facebook, Inc. (FB 4.02%) investors were justifiably concerned going into the company's financial report. The stock had fallen 10% during the quarter, and doubts remained about whether the company would be able to continue its history of stellar growth.
Any lingering questions were swept away when Facebook released earnings for the just completed first quarter. Revenue of $11.79 billion grew 50% year over year, blowing past analysts' consensus estimates of $11.4 billion. Operating margins surged to 46%, compared to just 41% in the first quarter last year. Net income of $4.99 billion grew a massive 63%, producing $1.69 in earnings per diluted share, shattering expectations of $1.35 per share.
These results seemed to soothe investor's fears, as the stock came roaring back, gaining more than 9% as of this writing.
Facebook has shaken off fears that users would abandon its social media site. Image source: Facebook.
Blockbuster financial growth
|
Metric |
Q1 2018 |
Q1 2017 |
Year Over Year Change |
|---|---|---|---|
|
Revenue |
$11.795 billion |
$7.857 billion |
50% |
|
Operating margin |
46% |
41% |
500 basis points |
|
Net income |
$4.988 billion |
$3.064 billion |
63% |
|
Diluted earnings per share |
$1.69 |
$1.04 |
63% |
Data source: Facebook's First-Quarter Financial Release. Chart by author.
Mobile advertising revenue grew to $10.7 billion, up 60% year over year, and now accounts for 91% of the total, up from 85% in the prior-year quarter. The average price per ad grew 39% compared the year-ago period, while ad impressions grew 8% year over year. Average revenue per user globally grew to $5.53, up 30% over the prior-year quarter.
Users aren't going anywhere
Despite the #deleteFacebook movement, it doesn't appear that users are leaving. Facebook's monthly user base grew to 2.2 billion, while those using the platform daily crested 1.45 billion, both up 13% year over year. It isn't just Facebook that is seeing greater engagement. The company's messaging apps also saw solid usage. Between WhatsApp and Messenger, users are sending almost 100 billion messages per day, and generating 3 billion minutes of video and voice calling.
Facebook has been working to restore the confidence of both users and investors over charges of fake news, hate speech, and election interference occurring on its platform last year. The company has also been under increasing scrutiny recently, since a revelation that data had been harvested from tens of millions of Facebook users by an analytics firm.
The company said it bought back $1.9 billion in stock during the first quarter and also added $9 billion to its share repurchase program. Facebook generated $5 billion in free cash flow during the quarter, up from just $3.8 billion in the same period last year.
Mark Zuckerberg, Facebook's founder and CEO, addressed the issues, saying:
Despite facing important challenges, our community and business are off to a strong start in 2018. We are taking a broader view of our responsibility and investing to make sure our services are used for good. But we also need to keep building new tools to help people connect, strengthen our communities, and bring the world closer together.
Looking ahead
Facebook has been beating the drum for some time, warning that the rapid revenue growth rates that investors have come to expect would eventually decelerate, and the company continued that refrain this quarter.
The company said it anticipates revenue growth rates "will decelerate on a constant currency basis" as the year progresses. Facebook also said it expects total expenses for 2018 to be between 50% and 60%, narrowing from its prior range of 45% to 60%.
Adopting the higher end of the range is the result of significant investments the company is making in the areas of safety and security, content investments to support Watch, and long-term innovation in areas like artificial intelligence, augmented reality, virtual reality, and connectivity. The company also expects to spend about $15 billion in capital expenditures this year, adding data centers, servers, network infrastructure, and office facilities.
