Facebook Q4 2012 Quarterly Earnings

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Facebook Q4 2012 Quarterly Earnings

  1. Quarterly Earnings Slides Q4 2012
  2. Safe HarborIn 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 1,056 Rest of World 1,007 Asia 955 Europe 901 845 304 US & Canada 288 800 739 268 245 680 225 207 608 183 161 277 298 133 234 255 196 212 174 156 138 239 246 253 261 212 221 229 183 201 154 163 169 176 179 183 186 189 193 Q410 Q111 Q211 Q311 Q411 Q112 Q212 Q312 Q412Please see Facebooks Form 10-K for the year ended December 31, 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)Millions of DAUs 618 584 Rest of World 552 Asia 526 161 Europe 483 152 457 139 US & Canada 417 126 109 372 100 87 153 327 129 141 74 119 98 105 58 85 72 64 152 154 160 169 135 143 120 127 107 105 117 124 126 129 130 132 135 99 Q410 Q111 Q211 Q311 Q411 Q112 Q212 Q312 Q412DAUs / MAUs Q410 Q111 Q211 Q311 Q411 Q112 Q212 Q312 Q412 54% 55% 56% 57% 57% 58% 58% 58% 59%Please see Facebooks Form 10-K for the year ended December 31, 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 680 604 543 488 432 376 325 288 245 Q410 Q111 Q211 Q311 Q411 Q112 Q212 Q312 Q412Please see Facebooks Form 10-K for the year ended December 31, 2012 for definitions of user activity used to determine the number of our MAUs, DAUsand 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. Mobile Only Monthly Active Users (Mobile Only MAUs)Millions of Mobile Only MAUs 157 126 102 83 58 Q411 Q112 Q212 Q312 Q412Mobile Only MAUs are mobile MAUs that accessed Facebook solely through mobile apps or our mobile website. 6
  7. Revenue $5,089Millions of Dollars $1,585 Payments and other fees $810 Advertising $256 $1,262 $3,711 $1,184 $1,131 $176 $1,058 $557 $192 $954 $188 $895 $186 $156$731 $731 $119 $1,974 $4,279 $76 $94 $1,329 $106 $1,086 $3,154 $943 $992 $872 $776 $798$655 $637 $1,868Q410 Q111 Q211 Q311 Q411 Q112 Q212 Q312 Q412 2010 2011 2012 Quarterly Annual 7
  8. Revenue by User GeographyMillions of Dollars $1,585 $5,089 Rest of World $497 $167 Asia $605 Europe $1,262 $198 US & Canada $1,184 $3,711 $1,131 $130 $277 $87 $1,058 $113 $154 $363 $1,455 $954 $115 $87 $135 $440 $895 $78 $118 $65 $731 $731 $104 $341 $1,155 $82 $346 $43 $47 $361 $1,974 $58 $328 $62 $290 $101 $275 $148$218 $229 $577 $780 $2,532 $590 $637 $1,914 $567 $525 $471 $482$412 $394 $1,146Q410 Q111 Q211 Q311 Q411 Q112 Q212 Q312 Q412 2010 2011 2012 Quarterly AnnualRevenue 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. Advertising Revenue by User GeographyMillions of Dollars $1,329 Rest of World $156 Asia Europe $1,086 $168 US & Canada $992 $120 $943 $872 $104 $79 $133 $776 $798 $79 $115 $95 $374 $655 $61 $71 $99 $637 $88 $295 $41 $74 $44 $306 $294 $53 $56 $274 $245 $245 $201 $206 $631 $479 $538 $462 $419 $359 $394 $395 $332 Q410 Q111 Q211 Q311 Q411 Q112 Q212 Q312 Q412Revenue 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 & Other Revenue by User GeographyMillions of Dollars $256 Rest of World $11 Asia $30 Europe US & Canada $188 $186 $192 $8 $8 $9 $176 $66 $20 $19 $20 $10 $156 $7 $21 $119 $16 $52 $55 $54 $4 $46 $94 $8 $45 $76 $3 $6 $30 $2 $5 $23 $149 $17 $105 $106 $111 $99 $77 $87 $53 $62 Q410 Q111 Q211 Q311 Q411 Q112 Q212 Q312 Q412Revenue 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. 10
  11. Payments Revenue Recognition Timing Payments terms and conditions provide for a 30- As of Q4 2012, we had 24 months of historical day claim period following a Payments transaction transactional information. As a result, starting during which the customer may dispute the in Q4 2012 we recorded all Payments revenues transaction. in the month the transaction occurs, net of estimated refunds or chargebacks. In Q3 2012 and prior, due to insufficient This change resulted in a one-time transaction history, Payments revenues were increase in Payments revenue in recognized after the claim period lapsed. the fourth quarter as we For example, transactions occurring in June recognized revenue from an extra were recognized as revenue 30 days later, in month of payments transactions July, and included in Q3 2012 revenue. (those occurring in September Therefore, Q3 2012 revenue reflects through December.) transactions that occurred during the months of June, July and August.June Jul Aug Sept Oct Nov Dec Jan Feb Mar Q 3 2012 Q 4 2012 Q1 2013 11
  12. Average Revenue per User (ARPU) Worldwide US & Canada $1.54 $1.38 $3.40 $4.08 $5.32 $3.20 $3.20 $5.02 $13.58 $2.90 $1.29 $11.33 $1.28 $3.97 $8.34 $1.21 Q411 Q112 Q212 Q312 Q412 2010 2011 2012 Q411 Q112 Q212 Q312 Q412 2010 2011 2012Europe Asia Rest of World $1.71$1.60 $0.47 $0.56 $1.84 $0.44 $5.91 $2.35 $1.40 $1.43 $1.37 $5.46 $0.41 $2.05 $0.37 $1.50 $3.75 $1.49 $0.94 $0.69 $0.56 $0.53 $0.55 $0.58Q411 Q112 Q212 Q312 Q412 2010 2011 2012 Q411 Q112 Q212 Q312 Q412 2010 2011 2012 Q411 Q112 Q212 Q312 Q412 2010 2011 2012 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. Please see Facebooks Form 10-K for the year ended December 31, 2012 for definitions of ARPU and annual ARPU. 12
  13. Share-Based Compensation Expense $1,106Millions of Dollars Pre-2011 RSUs Post-2011 RSUs Options & Other $986 $179 $184 $28 $24 $103 $64 $70 $76 $138 $137 $6 $7 $97 $113 $58 $59 $74 Q410 Q111 Q211 Q311 Q411 Q112 Q212 Q312 Q412Q4 2012 expenses are estimates and exclude any potential impact of future acquisitions. 13
  14. Expenses as a % of Revenue Share-based compensation + Payroll tax related to share-based compensation All other expenses Cost of Revenue Research & Development 31% 60% 26% 26% 26% 22% 26% 25% 25% 25% 19% 19% 22% 14% 11% 7% 9% 9% 11% 10% Q411 Q112 Q212 Q312 Q412 Q411 Q112 Q212 Q312 Q412Marketing & Sales General & Administrative 33% 39% 14% 13% 12% 11% 12% 11% 8% 10% 9% 12% 11% 12% 10% 11% 10% 7% 8% 9%Q411 Q112 Q212 Q312 Q412 Q411 Q112 Q212 Q312 Q412We have reclassified certain prior period amounts in marketing and sales to general and administrative expense to conform to our currentperiod presentation. These reclassifications did not affect revenue, total costs and expenses, income (loss) from operations, or net (loss)income. 14
  15. GAAP Income (Loss) from Operations & MarginIncome (Loss) from Operations ($M) $437 $548 $523 $388 $407 $414 $381 $377 ($743) Q410 Q111 Q211 Q311 Q411 Q112 Q212 Q312 Q412Operating Margin 60% 53% 48% 45% 43% 36% 33% 30% (63%)Q410 Q111 Q211 Q311 Q411 Q112 Q212 Q312 Q412 15
  16. Effective Tax Rate(in millions) Q1 Q2 Q3 Q4 2012 2012 2012 2012 2011 2012 Revenue $ 1,058 $ 1,184 $ 1,262 $ 1,585 $ 3,711 $ 5,089 Costs and expenses: Cost of revenue 277 367 322 398 860 1,364 Research and development 153 705 244 297 388 1,399 Marketing and sales 143 392 168 193 393 896 General and administrative 104 463 151 174 314 892 Total costs and expenses 677 1,927 885 1,062 1,955 4,551 Income from operations 381 (743) 377 523 1,756 538 Interest and other income (expense), net Interest expense (13) (10) (11) (16) (42) (51) Other income (expense), net 14 (12) 6 (2) (19) 7 Income (loss) before provision for income taxes 382 (765) 372 505 1,695 494 Provision for (benefit from) income taxes 177 (608) 431 441 695 441 Net income (loss) $ 205 $ (157) $ (59) $ 64 $ 1,000 $ 53Effective Tax Rate 46% 79% 116% 87% 41% 89%Q2 through Q4 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 16
  17. GAAP Net Income (Loss)Millions of Dollars $302 $251 $240 $233 $227 $205 $64 ($59) ($157)Q410 Q111 Q211 Q311 Q411 Q112 Q212 Q312 Q412 17
  18. Non-GAAP Net IncomeMillions of Dollars $1,317 $1,164 $426 $360 Q4 2011 Q4 2012 2011 2012 Quarterly AnnualNon-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. 18
  19. Capital InvestmentsMillions of Dollars $1,575 Property and equipment acquired under capital leases $340 Purchases of property and equipment $1,079 $473 $510 $1,235 $217 $606 $89 $293 $56 $33 2009 2010 2011 2012 Annual 19
  20. EmployeesPeriod-end Headcount 4,619 3,200 2,127 1,218 2009 2010 2011 2012 Annual 20
  21. Appendix
  22. Reconciliations Three Months Ended Year Ended December 31, December 31, 2011 2012 2011 2012GAAP net income $ 302 $ 64 $ 1,000 $ 53 Share-based compensation expense 76 184 217 1,572 Payroll tax expenses related to share-based compensation - 29 7 151 Income tax adjustments (18) 149 (60) (459)Non-GAAP net income $ 360 $ 426 $ 1,164 $ 1,317 22
  23. Limitations of Key MetricsThe numbers of our monthly active users (MAUs) and daily active users (DAUs) and average revenue per user(ARPU) are calculated using internal company data based on the activity of user accounts. While these numbersare based on what we believe to be reasonable estimates of our user base for the applicable period ofmeasurement, there are inherent challenges in measuring usage of our products across large online and mobilepopulations around the world. For example, there may be individuals who maintain one or more Facebookaccounts in violation of our terms of service, despite our efforts to detect and suppress such behavior. Weestimate, for example, that “duplicate” accounts (an account that a user maintains in addition to his or herprincipal account) may have represented approximately 5.0% of our worldwide MAUs as of December 31, 2012. Wealso seek to identify “false” accounts, which we divide into two categories: (1) user-misclassified accounts, whereusers have created personal profiles for a business, organization, or non-human entity such as a pet (such entitiesare permitted on Facebook using a Page rather than a personal profile under our terms of service); and (2)undesirable accounts, which represent user profiles that we determine are intended to be used for purposes thatviolate our terms of service, such as spamming. As of December 31, 2012, for example, we estimate user-misclassified accounts may have represented approximately 1.3% of our worldwide MAUs and undesirableaccounts may have represented approximately 0.9% of our worldwide MAUs. We believe the percentage ofaccounts that are duplicate or false is meaningfully lower in developed markets such as the United States orAustralia and higher in developing markets such as Indonesia and Turkey. However, these estimates are based onan internal review of a limited sample of accounts and we apply significant judgment in making thisdetermination, such as identifying names that appear to be fake or other behavior that appears inauthentic tothe reviewers. As such, our estimation of duplicate or false accounts may not accurately represent the actualnumber of such accounts. We are continually seeking to improve our ability to identify duplicate or falseaccounts and estimate the total number of such accounts, and such estimates may be affected by improvementsor changes in our methodology. 23
  24. Limitations of Key Metrics (continued)Some of our historical metrics through the second quarter of 2012 have also been affected by applications oncertain mobile devices that automatically contact our servers for regular updates with no user action involved,and this activity can cause our system to count the user associated with such a device as an active user on theday such contact occurs. For example, we estimate that less than 5% of our estimated worldwide DAUs as ofDecember 31, 2011 and 2010 resulted from this type of automatic mobile activity, and that this type of activity hada substantially smaller effect on our estimate of worldwide MAUs and mobile MAUs. The impact of this automaticactivity on our metrics varies by geography because mobile usage varies in different regions of the world. Inaddition, our data regarding the geographic location of our users is estimated based on a number of factors, suchas the user’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 location of theproxy server that the user connects to rather than from the user’s actual location. The methodologies used tomeasure user metrics may also be susceptible to algorithm or other technical errors. For example, in early June2012, we discovered an error in the algorithm we used to estimate the geographic location of our users thataffected our attribution of certain user locations for the period ended March 31, 2012. While this issue did notaffect our overall worldwide MAU number, it did affect our attribution of users to different geographic regions.We estimate that the number of MAUs as of March 31, 2012 for the United States & Canada region was overstatedas a result of the error by approximately 3% and these overstatements were offset by understatements in otherregions. In addition, our estimates for revenue by user location are also affected by these factors. We regularlyreview and may adjust our processes for calculating these metrics to improve their accuracy. In addition, ourMAU and DAU estimates will differ from estimates published by third parties due to differences in methodology.For example, some third parties are not able to accurately measure mobile users or do not count mobile users forcertain user groups or at all in their analyses.The number of MAUs, DAUs, mobile MAUs, and ARPU discussed in these slides do not include users of Instagramunless such users would otherwise quality as MAUs, DAUs, and mobile MAUs, respectively, based on activity thatis shared back to Facebook. 24

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