Since Facebook went public, the company has grown its top line at mind-boggling rates. In fact, Facebook's year-over-year quarterly revenue growth rates have accelerated for five quarters in a row. In the third quarter of 2012, Facebook's revenue was up 32% from the year-ago quarter. In the social network's most recent quarter that growth rate was 63%.
Going into Facebook's first quarter of 2014, analysts expect 63% year-over-year top-line growth again. But considering that Facebook has beat top line estimates every quarter since it went public, there is likely an unspoken expectation for the social network to accelerate top-line growth yet again. Investors should hope Facebook can grow year-over-year revenue by 65% or more.
Although Facebook only initiated mobile advertising in the fourth quarter of 2012, its fast-growing importance to Facebook's business results has made the metric among the most important for investors to keep an eye on. Mobile ad revenue has soared from accounting for 23% of total ad revenue in the fourth quarter of 2012 to 53% in the fourth quarter of 2013. Investors should look for mobile revenue to account for 56% or more of Facebook's advertising revenue in Q1.
Daily active users
The ultimate competitive advantage a large social network like Facebook benefits from is network effects. How does a network effect work? With every additional member that joins a particular social platform, it becomes more useful for existing and new users. While Facebook's network is often measured by monthly active users, it's daily active users that really gives the company considerable staying power. No other social network on the planet comes even close to Facebook's 757 million daily active users.
With Facebook's daily active users metric increasing about 4% sequentially in Q4, investors should hope for at least a two to three percent sequential increase in Q1, or about 775 million daily active users.
As Facebook continues to refine its ad products and test entirely new ones, investors want to be sure that the advertisements aren't hindering the engagement on the platform. Investors can measure engagement by looking at the percentage of monthly active users using the social network on a daily basis. Last quarter that figure was 61.5%, slightly higher than the 61.2% in the quarter before. While investors should hope Facebook can at least maintain its current engagement rate, it would be excellent news if the company continues to push that rate even higher.
What can investors do with these guidelines for key metrics? Use them as baseline comparisons. If Facebook meaningfully deviates from any of these expectations, it may be worth your time to dig into the results and the earnings call to find out exactly what's going on, and maybe even reevaluate Facebook's opportunities and challenges.