Financial PR (Mar2014 Intake): Assignment 2

Word count: 991

Highlights of Facebook’s First Quarter Earnings of 2014

Founded in 2004, Facebook’s mission is to give people the control to share and make the world more accessible and connected. People use Facebook to keep in touch with friends and family, to know what’s happening in other parts of the world, and to share and express their opinions about things that matter to them.

Since its establishment, Facebook has grown to become a prevailing force in the mobile advertising world in just a few short years. The company has grown faster than most experts have forecasted and its market stocks have been assessed at some bullish expectations.

The company released its first-quarter earnings on 23 April 2014, which beat analysts’ anticipations. This article highlights of the popular social network’s earnings from an independent financial analyst’s viewpoint. Facebook brought in $2.5 billion in revenue (Facebook, Inc. 2014) as compared to the $2.36 billion that analysts had predicted that could be seen in an article for Re/Code (Isaac, 2014). In comparison to analysts’ expectations that the company would earn only $0.24 per share (Walsh, 2014), the company said in the report that it earned $0.34 per share, once again exceeding the estimates of experts.

The biggest improvement that can be seen involves the surprising growth in mobile as explained in a recent article in The Motley Fool (Sparks, 2014). The company relies heavily on the force of its mobile app install advertisements and recently announced a progressive quarter on the power of its new advertising products. Referring to Facebook’s quarterly earnings report, mobile advertising revenue now makes up 59% of the corporation’s total revenue for advertising, only a year and a half after first introducing mobile ads. This is a significant increase from advertising revenue reported in the first quarter of 2013, which was approximately 30%.

It was reported that Facebook’s CEO Mark Zuckerberg said that the company has served 350 million installs through its app install program – adding to it another 100 million or so installs in the first quarter of the year, thus sending the corporation well on its way to achieving a $1 billion annual run rate (Lynley, 2014a). Mobile app install advertising is evidently one of Facebook’s most profitable new products. By the end of 2013, the social network had already served 245 million app install ads, as reported by Buzzfeed in February this year (Lynley, 2014b).

Based on the company’s quarterly report, it is obvious that advertisements that show up on Facebook’s News Feed have proven to be a natural step towards growth in Facebook’s advertising business as it moves to becoming a company that is more focused on monetizing mobile. The app install program is so beneficial that it has become a leader in its field that it has fueled other competing businesses to follow suit, as Twitter did not so long ago as seen on Twitter’s Advertising Blog (Lynn, 2014).

It is interesting how Facebook has redefined the mobile advertising business despite it not being the first to use mobile app install advertising. Owing to all the information that Facebook has of its users, the network has been able to perfect mobile advertising by targeting their audiences more efficiently.

Throughout the same quarter, Facebook spent more than $20 billion in cash, stock and restricted stock units in their bid of acquiring new companies that include WhatsApp for $19 billion (Covert, 2014) and an additional $2 billion to obtain gaming Kickstarter success, Oculus Rift (Welch, 2014). Facebook reports its cash and marketable securities were $12.63 billion at the end of the first quarter of this year.

One reason for the increase in profitability was partly due to better user engagement.  The corporation’s user engagement or daily active users (DAU) has steadily grown from 58% in the first quarter of 2012 to 60% in the same quarter of 2013 and has now reached 63% in the first quarter of 2014. Should the engagement continue to surge, a bigger number of users will become active on a day-to-day basis, which could eventually result in more improvements for Facebook’s revenue.

It is evident that beyond the steadily growing advertising business, Facebook itself has not stopped developing. The social network currently has more than a billion people logging in on their mobile devices every month, with more than 600 million of that number logging in every day. Facebook has a total number of 1.276 billion monthly active users (MAU), of which more than 800 million check the network every day.

Also part of the quarterly announcement, Facebook revealed that its Chief Financial Officer David Ebersman, would step down later this year after holding the position for almost five years. Ebersman had taken the company through its slightly tumultuous initial public offering. “This has been a tough decision because Facebook is such a great company and has such a bright future ahead, but I’ve decided to move back into healthcare where I spent my career before Facebook,” Ebersman said of his resignation.

Succeeding him as CFO will be David Wehner, Facebook’s current Vice President of Corporate Finance and Business Planning. Wehner was CFO of Zynga prior to his position at Facebook now.

“David has been a great partner in building Facebook, and I’m grateful for everything he’s done to help make the world more open and connected,” said Zuckerberg. “David set us up to operate efficiently and make the long term investments we need, and built and incredibly strong team including Dave Wehner, our next CFO. I look forward to working with Dave in his new role.” Ebersman is slated to remain with the company until September to guarantee a smooth transition of responsibilities.

Undeniably, Facebook has bested itself and managed to increase income and advance profit margins by intensifying its user base and turning consumers into daily users. The social network’s first-rate performance is living proof that Zuckerberg and his band of programmers have what it takes to continue to grow the mobile advertising field and encourage big marketing funds.

References:

1. Covert, A. (2014) Facebook buys WhatsApp for $19 billion. Available from: http://money.cnn.com/2014/02/19/technology/social/facebook-whatsapp/ [Accessed 3 May 2014].
2. Facebook, Inc. (2014) Quarterly Earnings Slides Q1 2014 [Online]. Menlo Park: PRNewswire. Available from: http://files.shareholder.com/downloads/AMDA-NJ5DZ/3145602626x0x746532/5c43ca27-de18-437a-b304-841a2052b98a/FB_Q114EarningsSlides20140421.pdf  [Accessed 04 May 2014].

3. Isaac, M. (2014) Facebook First-Quarter Earnings: What to Watch. Available from: https://recode.net/2014/04/22/facebook-first-quarter-earnings-what-to-watch/ [Accessed 4 May 2014].
4. Lynley, M. (2014a) Facebook's Mobile Advertising Juggernaut Keeps Growing. Available from: http://www.buzzfeed.com/mattlynley/facebooks-mobile-advertising-juggernaut-keeps-growing [Accessed 4 May 2014].
5. Lynley, M. (2014b) Meet The Woman Behind One Of Facebook's Fastest-Growing And Most Lucrative New Businesses. Available from: http://www.buzzfeed.com/mattlynley/meet-the-woman-behind-one-of-facebooks-fastest-growing-and-m [Accessed 3 May 2014].
6. Lynn, K. (2014) A new way to promote mobile apps to 1 billion devices, both on and off-Twitter | Twitter Blogs. Available from: https://blog.twitter.com/2014/a-new-way-to-promote-mobile-apps-to-1-billion-devices-both-on-and-off-twitter [Accessed 3 May 2014].
7. Sparks, D. (2014) Facebook, Inc.'s Monster Quarter in 3 Must-See Charts (FB, GOOG, GOOGL). Available from: http://www.fool.com/investing/general/2014/04/23/facebook-incs-monster-quarter-in-3-must-see-charts.aspx [Accessed 3 May 2014].
8. Walsh, T. (2014) What to Expect When Facebook Inc Reports Earnings Tomorrow (FB). Available from: http://www.fool.com/investing/general/2014/04/22/what-to-expect-when-facebook-reports-earnings-this.aspx [Accessed 4 May 2014].
9. Welch, C. (2014) Facebook buying Oculus VR for $2 billion. Available from: http://www.theverge.com/2014/3/25/5547456/facebook-buying-oculus-for-2-billion [Accessed 3 May 2014].