Facebook - Quarterly Earnings Slides - Q2 2014 Uploaded for IS 714 Mastering IT Strategy at Boston University School of Management

1. Quarterly Earnings Slides
Q2 2014
Text

2. Non-GAAP Measures
In addition to U.S. GAAP financials, this presentation includes certain non-GAAP financial measures. These
non-GAAP measures are in addition to, not a substitute for or superior to, measures of financial performance
prepared in accordance with U.S. GAAP. A reconciliation of non-GAAP financial measures to the corresponding
GAAP measures is provided in the appendix to this presentation.
2

3. 665
699
728 757
180 195 208 216
802 829
233 244
In Millions
Rest of World
Asia
Europe
US & Canada
552
584
618
129 141 153 167 181 189 200 139 216 228 152 161
154 160 169 179 182 188 195 203 206
130 132 135 139 142 144 147 150 152
Q2'12 Q3'12 Q4'12 Q1'13 Q2'13 Q3'13 Q4'13 Q1'14 Q2'14
3
Daily Active Users (DAUs)
DAUs / MAUs
Q2'12 Q3'12 Q4'12 Q1'13 Q2'13 Q3’13 Q4'13 Q1'14 Q2'14
58% 58% 59% 60% 61% 61% 62% 63% 63%
Please see Facebook's most recent quarterly or annual report filed with the SEC for definitions of user activity used to determine the number of our DAUs, mobile
DAUs, MAUs, and mobile MAUs. The number of DAUs, mobile DAUs, MAUs, and mobile MAUs do not include Instagram users unless they would otherwise qualify
as such users, respectively, based on their other activities on Facebook.

4. 4
Mobile Daily Active Users (Mobile DAUs)
In Millions
293
329
374
425
469
507
556
609
654
Q2'12 Q3'12 Q4'12 Q1'13 Q2'13 Q3'13 Q4'13 Q1'14 Q2'14
Please see Facebook's most recent quarterly or annual report filed with the SEC for definitions of user activity used to determine the number of our DAUs, mobile
DAUs, MAUs, and mobile MAUs. The number of DAUs, mobile DAUs, MAUs, and mobile MAUs do not include Instagram users unless they would otherwise qualify
as such users, respectively, based on their other activities on Facebook.

5. 1,056
1,110
1,155 1,189 1,228
1,276 1,317
1,007
395 411
955
346 362 376 304 327 268 288 255 277 298 319 339 351 368 390 410
246 253 261 269 272 276 282 289 292
186 189 193 195 198 199 201 202 204
Q2'12 Q3'12 Q4'12 Q1'13 Q2'13 Q3'13 Q4'13 Q1'14 Q2'14
5
Monthly Active Users (MAUs)
In Millions
Rest of World
Asia
Europe
US & Canada
Please see Facebook's most recent quarterly or annual report filed with the SEC for definitions of user activity used to determine the number of our DAUs, mobile
DAUs, MAUs, and mobile MAUs. The number of DAUs, mobile DAUs, MAUs, and mobile MAUs do not include Instagram users unless they would otherwise qualify
as such users, respectively, based on their other activities on Facebook.

6. 6
Mobile Monthly Active Users (Mobile MAUs)
In Millions
543
604
680
751
819
874
945
1,008
1,070
Q2'12 Q3'12 Q4'12 Q1'13 Q2'13 Q3'13 Q4'13 Q1'14 Q2'14
Please see Facebook's most recent quarterly or annual report filed with the SEC for definitions of user activity used to determine the number of our DAUs, mobile
DAUs, MAUs, and mobile MAUs. The number of DAUs, mobile DAUs, MAUs, and mobile MAUs do not include Instagram users unless they would otherwise qualify
as such users, respectively, based on their other activities on Facebook.

7. 7
Mobile-Only Monthly Active Users (Mobile-Only MAUs)
In Millions
219
254
296
341
399
Q2'13 Q3'13 Q4'13 Q1'14 Q2'14
Mobile-only MAUs are defined as users who accessed Facebook solely through mobile apps or mobile versions of our website, or used our Messenger app, in the
last 30 days of the given quarter. The number of mobile-only MAUs do not include Instagram users unless they would otherwise qualify as such users based on
their other activities on Facebook.

8. Revenue
In Millions
Payments and other fees
Advertising
$992 $1,086
*
$1,329 $1,245
$1,599
$1,798
$2,344 $2,265
$2,676
$192
$176
$256
$213
$214
$218
$241
$237
$234
$1,184 $1,262
$1,585
$1,458
$1,813
$2,016
$2,585 $2,502
$2,910
Q2'12 Q3'12 Q4'12 Q1'13 Q2'13 Q3'13 Q4'13 Q1'14 Q2'14
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*In the fourth quarter of 2012 we recognized revenue from four months of Payments transactions for accounting reasons detailed on pages 47 and 48 of our
Form 10-K filed on February 1, 2013.

9. In Millions
Rest of World
Asia
Europe
US & Canada
$590 $637 $780 $679
$848 $962
$1,206 $1,179 $1,308
$346 $341
$440
$423
$505
$538
$727 $698
$824
$135 $154
$198
$197
$247
$278
$341 $354
$431
$113 $130
$167
$159
$213
$238
$311 $271
$347
$1,184 $1,262
$1,585
$1,458
$1,813
$2,016
$2,585
$2,502
$2,910
Q2'12 Q3'12 Q4'12 Q1'13 Q2'13 Q3'13 Q4'13 Q1'14 Q2'14
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Revenue by User Geography
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 marketer or developer.

10. In Millions
Rest of World
Asia
Europe
US & Canada
10
Advertising Revenue by User Geography
$1,068 $1,039 $294 $1,175 $295
$479 $538 $631 $552
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 marketer or developer.
$721 $832
$374
$367
$451
$482
$658 $631
$757
$115
$133
$168
$176
$225
$255
$318 $333
$408
$104 $120
$156
$150
$202
$229
$300 $262
$336
$992 $1,086
$1,329
$1,245
$1,599
$1,798
$2,344
$2,265
$2,676
Q2'12 Q3'12 Q4'12 Q1'13 Q2'13 Q3'13 Q4'13 Q1'14 Q2'14

11. In Millions
Rest of World
Asia
Europe
US & Canada
$20 $69 $67 $67
$111 $99
$149
$127 $127 $130 $138 $140 $133
$52
$46
$66
$56 $54 $56
$21
$30
$21 $22 $23
$23 $21 $23
$9
$10
$11
$9 $11 $9
$11 $9 $11
$192
$176
$256
$213 $214 $218
$241 $237 $234
*
Q2'12 Q3'12 Q4'12 Q1'13 Q2'13 Q3'13 Q4'13 Q1'14 Q2'14
11
Payments & Other Fees Revenue by User Geography
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 marketer or developer.
*In the fourth quarter of 2012 we recognized revenue from four months of Payments transactions for accounting reasons detailed on pages 47
and 48 of our Form 10-K filed on February 1, 2013.

12. 12
Average Revenue per User (ARPU)
Europe
$1.67 $1.76
Worldwide
$2.36 $2.21
$2.61
$0.20 $0.20
$0.25
$0.23
$0.23
$1.87 $1.96
$2.61
$2.44
$2.84
Q2'13 Q3'13 Q4'13 Q1'14 Q2'14
Asia
$0.68 $0.74
$0.88 $0.88
US & Canada
$1.02
$0.07
$0.07
$0.06 $0.06
$0.06
$0.75 $0.81
$0.95 $0.93
$1.08
Q2'13 Q3'13 Q4'13 Q1'14 Q2'14
Rest of World
$0.60 $0.65
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 marketer or developer. Please see Facebook’s most recent quarterly or annual report filed with the
SEC for the definition of ARPU.
$0.81
$0.68
$0.83
$0.03
$0.03
$0.03
$0.02
$0.03
$0.63
$0.67
$0.84
$0.70
$0.86
Q2'13 Q3'13 Q4'13 Q1'14 Q2'14
$1.41 $1.53
$1.94 $1.81
$2.06
$0.19
$0.19
$0.20
$0.19
$0.18
$1.60
$1.72
$2.14
$2.00
$2.24
Q2'13 Q3'13 Q4'13 Q1'14 Q2'14
$3.67 $4.19
$5.34 $5.16
$5.79
$0.65
$0.65
$0.69 $0.69
$0.66
$4.32
$4.85
$6.03 $5.85
$6.44
Q2'13 Q3'13 Q4'13 Q1'14 Q2'14
Payments
Advertising

13. Share-Based Compensation Expense
13
In Millions
Pre-2011 RSUs
Post-2011 RSUs
Options & Other
$986
$28 $24 $9
$175 $193 $228 $231 $263
$113 $138 $137 $135 $17 $14 $11 $11
$10
$1,106
$179 $184 $170
$224 $239 $273 $274
$314
Q2'12 Q3'12 Q4'12 Q1'13 Q2'13 Q3'13 Q4'13 Q1'14 Q2'14

14. 14
Expenses as a % of Revenue
Share-based compensation + Payroll tax related to share-based compensation
Cost of Revenue
Marketing & Sales
15%
12% 11% 13% 12%
13% 10% 10% 11% 11%
Q2'13 Q3'13 Q4'13 Q1'14 Q2'14
All other expenses
Research & Development
19% 18%
9% 9%
16%
7%
18% 17%
8% 8%
10% 10% 9% 10% 9%
Q2'13 Q3'13 Q4'13 Q1'14 Q2'14
General & Administrative
10% 8% 10%
7% 7%
8% 7% 6% 6% 6%
Q2'13 Q3'13 Q4'13 Q1'14 Q2'14
25% 25%
19% 18% 16%
26% 25%
19% 18%
16%
Q2'13 Q3'13 Q4'13 Q1'14 Q2'14

15. Income (Loss) from Operations
GAAP Income (Loss) from Operations (In Millions)
($743)
$377 $523 $373 $562 $736
$1,133 $1,075
$1,390
Q2'12 Q3'12 Q4'12 Q1'13 Q2'13 Q3'13 Q4'13 Q1'14 Q2'14
Non-GAAP Income from Operations (In Millions)
$515 $525
$736
$563
$794
$987
$1,459 $1,374
$1,712
Q2'12 Q3'12 Q4'12 Q1'13 Q2'13 Q3'13 Q4'13 Q1'14 Q2'14
15
Non-GAAP income from operations excludes share-based compensation expense and payroll tax expenses related to share-based compensation—see the
Appendix for a reconciliation of this non-GAAP measure to GAAP income (loss) from operations.

16. 16
Operating Margin
GAAP Operating Margin
(63%)
30% 33% 26% 31% 37% 44% 43% 48%
Q2'12 Q3'12 Q4'12 Q1'13 Q2'13 Q3'13 Q4'13 Q1'14 Q2'14
Non-GAAP Operating Margin
43% 42% 46%
39% 44% 49%
56% 55% 59%
Q2'12 Q3'12 Q4'12 Q1'13 Q2'13 Q3'13 Q4'13 Q1'14 Q2'14
Non-GAAP operating margin excludes share-based compensation expense and payroll tax expenses related to share-based compensation—see the Appendix for a
reconciliation of this non-GAAP measure to GAAP operating margin.

17. 17
Effective Tax Rate
GAAP Effective Tax Rate
Non-GAAP Effective Tax Rate
Q2 Q3 Q4 Q1 Q2
($ in millions) 2013 2013 2013 2014 2014
GAAP income before provision for income taxes $ 545 $ 726 $ 1,130 $ 1,075 $ 1,386
GAAP provision for income taxes 212 301 607 433 595
Effective Tax Rate 39% 41% 54% 40% 43%
Q2 Q3 Q4 Q1 Q2
($ in millions) 2013 2013 2013 2014 2014
Non-GAAP income before provision for income taxes 777 977 1,456 1,374 1,708
Non-GAAP provision for income taxes 289 356 676 489 617
Effective Tax Rate 37% 36% 46% 36% 36%

18. 18
Net Income (Loss)
GAAP Net Income (Loss) (In Millions)
($157) ($59)
$64
$219 $333 $425 $523 $642
$791
Q2'12 Q3'12 Q4'12 Q1'13 Q2'13 Q3'13 Q4'13 Q1'14 Q2'14
Non-GAAP Net Income (In Millions)
$295 $311 $426 $312
$488
$621
$780 $885
Non-GAAP net income excludes share-based compensation expense, payroll tax expenses related to share-based compensation, and related
income tax adjustments—see the Appendix for a reconciliation of this non-GAAP measure to GAAP net income (loss).
$1,091
Q2'12 Q3'12 Q4'12 Q1'13 Q2'13 Q3'13 Q4'13 Q1'14 Q2'14

19. 19
Diluted Earnings (Loss) Per Share
GAAP Diluted Earnings (Loss) Per Share
($0.08)
($0.02)
$0.03
$0.09 $0.13 $0.17 $0.20
$0.25
$0.30
Q2'12 Q3'12 Q4'12 Q1'13 Q2'13 Q3'13 Q4'13 Q1'14 Q2'14
Non-GAAP Diluted EPS
$0.12 $0.12
$0.17
$0.12
$0.19
$0.25
$0.31 $0.34
$0.42
Q2'12 Q3'12 Q4'12 Q1'13 Q2'13 Q3'13 Q4'13 Q1'14 Q2'14
Non-GAAP diluted earnings per share excludes share-based compensation expense, payroll tax expenses related to share-based compensation,
and related income tax adjustments—see the Appendix for a reconciliation of this non-GAAP measure to GAAP diluted earnings (loss) per share.

20. 20
Capital Investments
In Millions
Property and equipment acquired
under capital leases
Purchases of property
and equipment
$606
$1,235
$1,362
$473
$340
$1,079
$1,575
$1,373
2011 2012 2013
Annual
$595
$832
$606
$832
YTD Q2'13 YTD Q2'14
Quarterly

21. Appendix

22. 22
Reconciliations
Income (Loss) from Operations (in millions) Q2'12 Q3'12 Q4'12 Q1'13 Q2'13 Q3'13 Q4'13 Q1'14 Q2'14
GAAP income (loss) from operations $ (743) $ 377 $ 523 $ 373 $ 562 $ 736 $ 1,133 $ 1,075 $ 1,390
Share-based compensation expense 1,106 179 184 170 224 239 273 274 314
Payroll tax expenses related to share-based compensation 152 (31) 29 20 8 12 53 25 8
Non-GAAP income from operations $ 515 $ 525 $ 736 $ 563 $ 794 $ 987 $ 1,459 $ 1,374 $ 1,712
Operating Margin Q2'12 Q3'12 Q4'12 Q1'13 Q2'13 Q3'13 Q4'13 Q1'14 Q2'14
GAAP operating margin (63%) 30% 33% 26% 31% 37% 44% 43% 48%
Share-based compensation expense 93% 14% 12% 12% 12% 12% 11% 11% 11%
Payroll tax expenses related to share-based compensation 13% (2%) 2% 1% 0% 1% 2% 1% 0%
Non-GAAP operating margin 43% 42% 46% 39% 44% 49% 56% 55% 59%
Net Income (Loss) (in millions) Q2'12 Q3'12 Q4'12 Q1'13 Q2'13 Q3'13 Q4'13 Q1'14 Q2'14
GAAP net income (loss) $ (157) $ (59) $ 64 $ 219 $ 333 $ 425 $ 523 $ 642 $ 791
Share-based compensation expense 1,106 179 184 170 224 239 273 274 314
Payroll tax expenses related to share-based compensation 152 (31) 29 20 8 12 53 25 8
Income tax adjustments (806) 222 149 (97) (77) (55) (69) (56) (22)
Non-GAAP net income $ 295 $ 311 $ 426 $ 312 $ 488 $ 621 $ 780 $ 885 $ 1,091
Diluted Earnings (Loss) Per Share Q2'12 Q3'12 Q4'12 Q1'13 Q2'13 Q3'13 Q4'13 Q1'14 Q2'14
GAAP diluted earnings (loss) per share $ (0.08) $ (0.02) $ 0.03 $ 0.09 $ 0.13 $ 0.17 $ 0.20 $ 0.25 $ 0.30
Non-GAAP adjustments to net income (loss) 0.24 0.15 0.14 0.03 0.06 0.08 0.11 0.09 0.12
Non-GAAP adjustments to diluted shares (0.04) (0.01) - - - - - - -
Non-GAAP diluted earnings per share $ 0.12 $ 0.12 $ 0.17 $ 0.12 $ 0.19 $ 0.25 $ 0.31 $ 0.34 $ 0.42

23. 23
Reconciliations (continued)
Effective Tax Rate (in millions) Q2'13 Q3'13 Q4'13 Q1'14 Q2'14
GAAP income before provision for income taxes $ 545 $ 726 $ 1,130 $ 1,075 $ 1,386
GAAP provision for income taxes 212 301 607 433 595
GAAP effective tax rate 39% 41% 54% 40% 43%
GAAP income before provision for income taxes $ 545 $ 726 $ 1,130 $ 1,075 $ 1,386
Share-based compensation and related payroll tax expenses 232 251 326 299 322
Non-GAAP income before provision for income taxes $ 777 $ 977 $ 1,456 $ 1,374 $ 1,708
Non-GAAP provision for income taxes 289 356 676 489 617
Non-GAAP effective tax rate 37% 36% 46% 36% 36%

24. 24
Reconciliations (continued)
Free Cash Flow (in millions) Q2'12 Q3'12 Q4'12 Q1'13 Q2'13 Q3'13 Q4'13 Q1'14 Q2'14
Net cash provided by operating activities $ 240 $ 250 $ 681 $ 719 $ 1,322 $ 950 $ 1,231 $ 1,285 $ 1,341
Purchases of property and equipment 413 171 198 327 268 284 483 363 469
Property and equpiment acquired under capital leases 52 161 89 11 - - - - -
Free Cash Flow $ (225) $ (82) $ 394 $ 381 $ 1,054 $ 666 $ 748 $ 922 $ 872

25. Limitations of Key Metrics and Other Data
The numbers for our key metrics, which include our daily active users (DAUs), mobile DAUs, monthly active users (MAUs),
mobile MAUs, and average revenue per user (ARPU), as well as certain other metrics such as mobile-only MAUs, are
calculated using internal company data based on the activity of user accounts. While these numbers are based on what we
believe to be reasonable estimates of our user base for the applicable period of measurement, there are inherent challenges
in measuring usage of our products across large online and mobile populations around the world.
For example, there may be individuals who maintain one or more Facebook accounts in violation of our terms of service,
despite our efforts to detect and suppress such behavior. We estimate, for example, that “duplicate” accounts (an account
that a user maintains in addition to his or her principal account) may have represented between approximately 4.3% and
7.9% of our worldwide MAUs in 2013. We also seek to identify “false” accounts, which we divide into two categories: (1)
user-misclassified accounts, where users have created personal profiles for a business, organization, or non-human entity
such as a pet (such entities are 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
that violate our terms of service, such as spamming. In 2013, for example, we estimate user-misclassified accounts may
have represented between approximately 0.8% and 2.1% of our worldwide MAUs and undesirable accounts may have
represented between approximately 0.4% and 1.2% of our worldwide MAUs. We believe the percentage of accounts that are
duplicate or false is meaningfully lower in developed markets such as the United States or the United Kingdom and higher in
developing markets such as India and Turkey. However, these estimates are based on an internal review of a limited sample
of accounts and we apply significant judgment in making this determination, such as identifying names that appear to be fake
or other behavior that appears inauthentic to the reviewers. As such, our estimation of duplicate or false accounts may not
accurately represent the actual number of such accounts. We are continually seeking to improve our ability to identify
duplicate or false accounts and estimate the total number of such accounts, and such estimates may be affected by
improvements or changes in our methodology. Due to inherent variability in such estimates at particular dates of
measurement, we disclose these estimates as a range over a recent period.
25

26. Limitations of Key Metrics and Other Data (cont.)
Our data limitations may affect our understanding of certain details of our business. For example, while user-provided data indicates a
decline in usage among younger users, this age data is unreliable because a disproportionate number of our younger users register
with an inaccurate age. In the third quarter of 2013, we worked with third parties to develop models to analyze user data by age in the
United States. These models suggested that usage by U.S. teens overall was stable, but that DAUs among younger U.S. teens had
declined. The data and models we are using are not precise and our understanding of usage by age group may not be complete.
Some of our metrics have also been affected by applications on certain 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 the day such contact occurs. For example, we estimate that less than 5% of our estimated worldwide DAUs as of
December 31, 2011 resulted from this type of automatic mobile activity, and that this type of activity had a substantially smaller effect on
our estimate of worldwide MAUs and mobile MAUs. The impact of this automatic activity on our metrics varies by geography because
mobile usage varies in different regions of the world. In addition, our data regarding the geographic location of our users is estimated
based on a number of factors, such as the user’s IP address and self-disclosed location. These factors may not always accurately
reflect the user’s actual location. For example, a mobile-only user may appear to be accessing Facebook from the location of the proxy
server that the user connects to rather than from the user’s actual location. The methodologies used to measure user metrics may also
be susceptible to algorithm or other technical errors. For example, in early 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 user locations for the period ended March 31,
2012. While this issue did not affect our overall worldwide DAU and MAU numbers, it did affect our attribution of users across different
geographic regions. We estimate that the number of MAUs as of March 31, 2012 for the United States & Canada region was overstated
as a result of the error by approximately 3% and this overstatement was offset by understatements in other regions. The number of such
users for the period ended March 31, 2012 presented herein reflect the reclassification to more correctly attribute users by geographic
region. Our estimates for revenue by user location are also affected by these factors.
We regularly review our processes for calculating these metrics, and from time to time we may make adjustments to improve their
accuracy. These adjustments may result in the recalculation of our historical metrics, which are immaterial unless otherwise noted. In
addition, our MAU 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 for certain user groups or at
all in their analyses.
The numbers of DAUs, mobile DAUs, MAUs, mobile MAUs, and mobile-only MAUs represented in these slides, as well as ARPU, do
not include users of Instagram unless they would otherwise qualify as such users, respectively, based on their other activities on
Facebook.
26