Facebook Q3 Quarterly Earnings

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  • 1. Quarterly Earnings Slides Q3 2012
  • 2. Safe HarborThis presentation contains forward-looking statements, which are subject to the safe harbor provisions of thePrivate Securities Litigation Reform Act of 1995. All statements other than statements of historical factscontained in this presentation, including statements regarding our estimates of future stock-basedcompensation expense, are forward-looking statements. These forward-looking statements are onlypredictions and may differ materially from actual results due to a variety of factors, including variations in thefuture price of our common stock as well as future grants and forfeitures of equity awards. In addition, pleasenote that the date of this presentation is October 23, 2012, and any forward-looking statements containedherein are based on assumptions that we believe to be reasonable as of this date. We undertake no obligationto update these statements as a result of new information or future events.In addition to U.S. GAAP financials, this presentation includes certain non-GAAP financial measures. Thesenon-GAAP measures are in addition to, not a substitute for or superior to, measures of financial performanceprepared in accordance with U.S. GAAP. A reconciliation of non-GAAP financial measures to the correspondingGAAP measures is provided in the appendix to this presentation. Please also see the appendix to thispresentation for information concerning limitations of our key user metrics.
  • 3. Monthly Active Users (MAUs)Millions of MAUs 1,007 Rest of World 955 Asia 901 845 288 Europe 800 268 US & Canada 739 245 680 225 207 608 183 550 161 277 133 234 255 196 212 126 174 156 138 113 229 239 246 253 201 212 221 167 183 144 154 163 169 176 179 183 186 189 Q310 Q410 Q111 Q211 Q311 Q411 Q112 Q212 Q312Please see Facebooks Form 10-Q for the quarter ended September 30, 2012 for definitions of user activity used to determine the number of our MAUs, DAUs andmobile MAUs. The number of MAUs, DAUs, and mobile MAUs do not include Instagram users unless such users would otherwise qualify as MAUs, DAUs, andmobile MAUs based on activity that is shared back to Facebook.In June 2012, we discovered an error in the algorithm we used to estimate the geographic location of our users that affected our attribution of certain userlocations for the first quarter of 2012. The first quarter of 2012 user metrics reflect a reclassification to more correctly attribute users by geographic region. 3
  • 4. Daily Active Users (DAUs) 584Millions of DAUs 552 526 Rest of World 483 152 Asia 457 139 Europe 126 417 US & Canada 109 372 100 87 141 327 119 129 293 74 105 58 98 85 54 72 64 54 152 154 160 135 143 127 107 120 94 105 117 124 126 129 130 132 92 99 Q310 Q410 Q111 Q211 Q311 Q411 Q112 Q212 Q312DAUs / MAUs Q310 Q410 Q111 Q211 Q311 Q411 Q112 Q212 Q312 53% 54% 55% 56% 57% 57% 58% 58% 58%Please see Facebooks Form 10-Q for the quarter ended September 30, 2012 for definitions of user activity used to determine the number of our MAUs, DAUs andmobile MAUs. The number of MAUs, DAUs, and mobile MAUs do not include Instagram users unless such users would otherwise qualify as MAUs, DAUs, andmobile MAUs based on activity that is shared back to Facebook.For non-worldwide DAU user numbers presented for the periods marked March 31, 2012 and June 30, 2012, the figures represent an average of the first 25 daysof the period and the last 27 days of the period, respectively, due to the algorithm error described in the MAU note on slide 3. These average numbers do notmeaningfully differ from the average numbers when calculated over a full month. 4
  • 5. Mobile Monthly Active Users (Mobile MAUs)Millions of Mobile MAUs 604 543 488 432 376 325 288 245 196 Q310 Q410 Q111 Q211 Q311 Q411 Q112 Q212 Q312Please see Facebooks Form 10-Q for the quarter ended September 30, 2012 for definitions of user activity used to determine the number of our MAUs,DAUs and mobile MAUs. The number of MAUs, DAUs, and mobile MAUs do not include Instagram users unless such users would otherwise qualify as MAUs,DAUs, and mobile MAUs based on activity that is shared back to Facebook. 5
  • 6. RevenueMillions of Dollars Payments and other fees Advertising $1,262 $1,184 $1,131 $1,058 $176 $192 $954 $188 $895 $186 $156 $119 $731 $731 $76 $94 $467 $1,086 $943 $992 $17 $872 $776 $798 $655 $637 $450 Q310 Q410 Q111 Q211 Q311 Q411 Q112 Q212 Q312 6
  • 7. Revenue by User GeographyMillions of Dollars $1,262 $1,184 Rest of World $1,131 $130 Asia $1,058 $113 $87 Europe $154 $954 $87 $135 US & Canada $115 $895 $78 $118 $65 $731 $104 $341 $731 $82 $346 $43 $361 $47 $328 $58 $62 $275 $290 $467 $218 $25 $229 $37 $134 $637 $567 $590 $471 $482 $525 $412 $394 $271 Q310 Q410 Q111 Q211 Q311 Q411 Q112 Q212 Q312Revenue by user geography is geographically apportioned based on our estimation of the geographic location of our users when they perform arevenue-generating activity. This allocation differs from our revenue by geography disclosure in our consolidated financial statements whererevenue is geographically apportioned based on the location of the advertiser or developer. 7
  • 8. Advertising Revenue by User GeographyMillions of Dollars $1,086 Rest of World $992 $120 Asia $943 $104 Europe $79 $872 $133 US & Canada $798 $79 $115 $776 $95 $61 $71 $99 $655 $637 $74 $88 $295 $41 $44 $306 $294 $53 $56 $450 $274 $245 $245 $24 $201 $206 $36 $130 $538 $462 $479 $394 $395 $419 $359 $332 $260 Q310 Q410 Q111 Q211 Q311 Q411 Q112 Q212 Q312Revenue by user geography is geographically apportioned based on our estimation of the geographic location of our users when they perform arevenue-generating activity. This allocation differs from our revenue by geography disclosure in our consolidated financial statements whererevenue is geographically apportioned based on the location of the advertiser or developer. 8
  • 9. Payments & Other Revenue by User GeographyMillions of Dollars $192 $188 $186 Rest of World $8 $9 $176 $8 Asia $20 $19 $20 $10 Europe $156 US & Canada $7 $21 $16 $52 $55 $54 $119 $46 $4 $8 $45 $94 $76 $3 $30 $6 $2 $5 $23 $17 $105 $106 $111 $99 $87 $77 $62 $17 $53 $11 Q310 Q410 Q111 Q211 Q311 Q411 Q112 Q212 Q312Revenue by user geography is geographically apportioned based on our estimation of the geographic location of our users when they perform arevenue-generating activity. This allocation differs from our revenue by geography disclosure in our consolidated financial statements whererevenue is geographically apportioned based on the location of the advertiser or developer. 9
  • 10. Payments Revenue Recognition TimingPayments terms and conditions provide for a 30-day claim period following aPayments transaction during which the customer may dispute the transaction. In Q3 and prior, due to insufficient transaction  Therefore starting in Q4, we expect to record history, Payments revenues have been recognized all Payments revenues in the month the after the claim period lapses. transaction occurs, net of estimated refunds or  For example, transactions occurring in June chargebacks. We anticipate that this are recognized as revenue 30 days later, in change will result in a one-time increase July, and included in Q3 revenue. So Q3 in Payments revenue in the fourth revenue reflects transactions that occurred quarter as we recognize revenue from an during the months of June, July and August. extra month of payments transactions (those occurring in September through In Q4 we will have 24 months of historical December.) transactional information at which time we believe we will be able to reasonably estimate future refunds and chargebacks. June Jul Aug Sept Oct Nov Dec Jan Feb Mar Q 3 2012 Q 4 2012 Q1 2013 10
  • 11. Average Revenue per User (ARPU) Worldwide US & Canada& Canada $1.38 $3.40 $1.26 $1.26 $1.24 $1.28 $1.29 $3.20 $3.20 $1.21 $2.90 $1.14 $2.84 $2.80 $2.77 $2.49 $0.90 $1.93 Q310Q410Q111Q211Q311Q411Q112Q212Q312 Q310Q410Q111Q211Q311Q411Q112Q212Q312Europe Asia Rest of the World $0.58 $0.56 $0.56 $0.53 $0.55 $1.60 $0.47 $0.50 $0.44 $1.40 $1.43 $1.37 $0.46 $0.41 $1.33 $1.34 $0.43 $0.38 $0.40 $0.37 $1.25 $1.19 $0.33 $0.36 $0.31$0.84 $0.22Q310Q410Q111Q211Q311Q411Q112Q212Q312 Q310Q410Q111Q211Q311Q411Q112Q212Q312 Q310Q410Q111Q211Q311Q411Q112Q212Q312 Revenue by user geography is geographically apportioned based on our estimation of the geographic location of our users when they perform a revenue-generating activity. This allocation differs from our revenue by geography disclosure in our consolidated financial statements where revenue is geographically apportioned based on the location of the advertiser or developer. The ARPU amount for US & Canada region in Q1 2012 reflects an adjustment based on the reclassification of certain users between geographical regions to more correctly attribute users by geographic region. 11
  • 12. Share-Based Compensation Expense $1,106Millions of Dollars Pre-2011 RSUs Post-2011 RSUs Options & Other $986 $179 ~$190 $28 $30 $103 $64 $70 $76 $138 $135 $4 $6 $7 $97 $113 $58 $59 $74 $25 Q310 Q410 Q111 Q211 Q311 Q411 Q112 Q212 Q312 Q412EQ4 2012 expenses are estimates and exclude any potential impact of future acquisitions. 12
  • 13. Expenses as a % of Revenue Share-based compensation + Payroll tax related to share-based compensation All other expenses Cost of Revenue 31% Research & Development 26% 60% 25% 26% 22% 24% 26% 25% 25% 19% 22% 14% 11% 11% 8% 7% 9% 9% 11% Q311 Q411 Q112 Q212 Q312 Q311 Q411 Q112 Q212 Q312Marketing & Sales 33% General & Administrative 39% 12% 14% 13% 11% 10% 12% 9% 8% 11% 9% 12% 11% 12% 6% 7% 8% 11% 10%Q311 Q411 Q112 Q212 Q312 Q311 Q411 Q112 Q212 Q312We have reclassified certain prior period amounts in marketing and sales to general and administrative expense to conform to our currentperiod presentation. These reclassifications did not affect revenue, total costs and expenses, income (loss) from operations, or net (loss)income. 13
  • 14. GAAP Income (Loss) from Operations & MarginIncome (Loss) from Operations ($M) $437 $548 $388 $407 $414 $381 $377 $216 $(743)Q310 Q410 Q111 Q211 Q311 Q411 Q112 Q212 Q312Operating Margin 46% 60% 53% 48% 45% 43% 36% 30% (63%)Q310 Q410 Q111 Q211 Q311 Q411 Q112 Q212 Q312 14
  • 15. Effective Tax Rate (in millions) Q1 Q2 Q3 YTD 2012 2012 2012 2012 Revenue $ 1,058 $ 1,184 $ 1,262 $ 3,504 Costs and expenses: Cost of revenue 277 367 322 967 Research and development 153 705 244 1,102 Marketing and sales 143 392 168 703 General and administrative 104 463 151 717 Total costs and expenses 677 1,927 885 3,489 Income from operations 381 (743) 377 15 Interest and other income (expense), net Interest expense (13) (10) (11) (35) Other income (expense), net 14 (12) 6 9 Income (loss) before provision for income taxes 382 (765) 372 (11) Provision for (benefit from) income taxes 177 (608) 431 - Net income (loss) $ 205 $ (157) $ (59) $ (11) Effective Tax Rate 46% 79% 116% 0% Q2 and Q3 effective tax rates were influenced by significant share-based compensation expense resulting from our initial public offering, a portion of which is not tax-deductible. A combination of tax benefits recorded in Q2 and tax provisions in Q1 and Q3 result in an approximately 0% effective tax rate in the year-to-date period. 15
  • 16. GAAP Net Income (Loss)Millions of Dollars $302 $251 $240 $233 $227 $205 $131 $(59) $(157)Q310 Q410 Q111 Q211 Q311 Q411 Q112 Q212 Q312 16
  • 17. Non-GAAP Net IncomeMillions of Dollars $890 $804 $311 $273 Q3 2011 Q3 2012 YTD 11 YTD 12 Quarterly YTDNon-GAAP net income excludes share based compensation expense, payroll tax expenses related to share-based compensation, and relatedincome tax adjustments—see the Appendix for a reconciliation of this non-GAAP measure to GAAP net income. 17
  • 18. Capital Investments $1,288Millions of Dollars Property and equipment acquired $1,079 $251 under capital leases Purchases of property and equipment $473 $814 $393 $510 $1,037 $217 $606 $421 $89 $293 $56 $33 2009 2010 2011 YTD11 YTD12 Annual YTD 18
  • 19. EmployeesPeriod-end Headcount 4,331 3,200 2,958 2,127 1,218 2009 2010 2011 YTD11 YTD12 Annual YTD 19
  • 20. Appendix
  • 21. Reconciliations Three Months Ended Nine Months Ended September 30, September 30, 2011 2012 2011 2012GAAP net income (loss) $ 227 $ (59) $ 698 $ (11) Share-based compensation expense 70 179 141 1,388 Payroll tax expenses related to share-based compensation - (31) 7 122 Income tax adjustments (24) 222 (42) (609)Non-GAAP net income $ 273 $ 311 $ 804 $ 890 21
  • 22. Limitations of Key MetricsThe numbers of our MAUs and DAUs and average revenue per user (ARPU) are calculated using internalcompany data. While these numbers are based on what we believe to be reasonable estimates of our userbase for the applicable period of measurement, there are inherent challenges in measuring usage of ourproducts across large online and mobile populations around the world. For example, there may beindividuals who maintain one or more Facebook accounts in violation of our terms of service, despite ourefforts to detect and suppress such behavior. We estimate, for example, that “duplicate” accounts (anaccount that a user maintains in addition to his or her principal account) may have representedapproximately 4.8% of our worldwide MAUs as of June 30, 2012. We also seek to identify “false” accounts,which we divide into two categories: (1) user-misclassified accounts, where users have created personalprofiles for a business, organization, or non-human entity such as a pet (such entities are permitted onFacebook using a Page rather than a personal profile under our terms of service); and (2) undesirableaccounts, which represent user profiles that we determine are intended to be used for purposes that violateour terms of service, such as spamming. As of June 30, 2012, for example, we estimate user-misclassifiedaccounts may have represented approximately 2.4% of our worldwide MAUs and undesirable accountsmay have represented approximately 1.5% of our worldwide MAUs. We believe the percentage ofaccounts that are duplicate or false is meaningfully lower in developed markets such as the United Statesor Australia and higher in developing markets such as Indonesia and Turkey. However, these estimatesare based on an internal review of a limited sample of accounts and we apply significant judgment inmaking this determination, such as identifying names that appear to be fake or other behavior that appearsinauthentic to the reviewers. As such, our estimation of duplicate or false accounts may not accuratelyrepresent the actual number of such accounts. We are continually seeking to improve our ability to identifyduplicate or false accounts and estimate the total number of such accounts, and such estimates may beaffected by improvements or changes in our methodology. 22
  • 23. Limitations of Key Metrics (continued)Our metrics are also affected by applications on certain mobile devices that automatically contact ourservers for regular updates with no user action involved, and this activity can cause our system to countthe user associated with such a device as an active user on the day such contact occurs. For example, weestimate that less than 5% of our estimated worldwide DAUs as of December 31, 2011 and 2010 resultedfrom this type of automatic mobile activity, and that this type of activity had a substantially smaller effect onour estimate of worldwide MAUs and mobile MAUs. The impact of this automatic activity on our metricsvaries by geography because mobile usage varies in different regions of the world. In addition, our dataregarding the geographic location of our users is estimated based on a number of factors, such as theuser’s IP address and self-disclosed location. These factors may not always accurately reflect the user’sactual location. For example, a mobile-only user may appear to be accessing Facebook from the locationof the proxy server that the user connects to rather than from the user’s actual location. Themethodologies used to measure user metrics may also be susceptible to algorithm or other technicalerrors. For example, in early June 2012, we discovered an error in the algorithm we use to estimate thegeographic location of our users that affected our attribution of certain user locations for the period endedMarch 31, 2012. While this issue did not affect our overall worldwide MAU number, it did affect ourattribution of users to different geographic regions. We estimate that the number of MAUs as of March 31,2012 for the United States and Canada region was overstated as a result of the error by approximately 3%and these overstatements were offset by understatements in other regions. In addition, our estimates forrevenue by user location are also affected by these factors. We regularly review and may adjust ourprocesses for calculating these metrics to improve their accuracy. In addition, our MAU and DAU estimateswill differ from estimates published by third parties due to differences in methodology. For example, somethird parties are not able to accurately measure mobile users or do not count mobile users for certain usergroups or at all in their analyses. 23