Facebook stock hit an all-time high after-hours after the company reported its Q3 earnings, beating analyst expectations on the top and bottom line.
Here are the most important numbers:
- Revenue: $4.5 billion vs. analyst expectations of $4.37 billion, up 41% year-over-year.
- Adjusted EPS: $0.57 vs. analyst expectations of $0.52.
- MAUs: 1.55 billion monthly active users vs. 1.52 billion expected.
The after-hours stock was up nearly 5% initially, dipped down to +2%, and settled around 4% after the earnings call. At about 107.7, Facebook's stock is at a new all-time high and shares are up roughly 25% since mid-August.
Facebook (FB-NASDAQ) Shares climbed from 104.00 to 108.76 on Thursday, November 5, 2015, a gain of 4.82 following stellar Q3 2015 earnings call. (Click Image To Enlarge)
None of the numbers reported in the release were hugely surprising. Its expenses were up 68% year-over-year, but the company had previously said that it plans to invest heavily this year. Also as expected, Facebook saw an increase in the percentage of its revenue coming from mobile.
One of the most mind-blowing numbers came in the earnings call, though, when the company shared that Facebook now has 8 billion video views per day. That's double the 4 billion daily views the company reported in April. Those views come from the 500 million users who are watching videos every day.
CEO Mark Zuckerberg said when asked about video on the call.
"We're just so early in this right now. It's pretty amazing how quickly it's growing. But there's a lot more to do."
Here are the other important numbers:
- 1.01 billion daily active users on average for September, which is up 17% year-over-year, and 894 million people use Facebook on their phone every day.
- Of Facebook's 1.5 billion monthly active users, 1.38 billion are accessing the site on mobile, and 727 million are mobile-only users. That's up 37% year-over-year, likely driven by Facebook's adoption in emerging markets like India and Africa, where people primarily access the internet on smartphones.
- Costs and expenses of $3.04 billion, which is up 68% year-over-year, with R&Dmore than doubling year-over-year to $1.27 billion. That's also up significantly from $2.76 billion in costs and expenses last quarter.
- The adjusted operating margin was 54%, down from 57% year-over-year.
- About 78% of advertising revenue came from mobile, up from 66% at this time last year and 76% last quarter.
- As usual, most of Facebook's revenue came from advertising, but about 4%, or $202 million, came from payments and other fees. That's down from 7% in Q3 2014, which Facebook has, in the past, attributed to a drop in revenue from gaming apps.
- Free cash flow was $1.41 billion in the third quarter.
- Most of Facebook's revenue comes from North America and Europe, with only about 25% ($1.1 billion) coming from Asia-Pacific and the rest of the world. But those areas account for 65% of its monthly active users. The average revenue per user in those regions is still tiny, compared to in the US — $1.39 and $0.94, respectively, vs. $10.49 and $3.47 in the US and Europe.
- Facebook recently made a big press push around its efforts in emerging markets, and how it's optimizing its content and, importantly, its advertising to work well in areas of the world. But it seems those efforts haven't shifted the average revenue-per-user numbers yet.
Here's a look at where Facebook's revenue comes from:
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And you can see that Facebook also makes more per user in the US than it used to, likely attributable to the rollout of video and Instagram ads:
Click Image To Enlarge
And here's Facebook's state of the union as far as the size of its various products:
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Some highlights from the earnings call
Zuckerberg and COO Sheryl Sandberg shared some stats on the call:
- There are 8 billion daily video views on Facebook. That's up from 4 billion a few months ago.
- Lots of those views are coming from the 500 million people who are watching video on FB daily.
- Over 1.5 million small businesses posted a video — organic posts and ads — on Facebook in September.
- 1 billion people use Facebook on Android.
- 925 million people use Groups — and in some countries, more than half the population use them.
- People share 80 million photos a day on Instagram.
- 1 in 5 of the minutes that people spend on their phones per day is with Facebook and Instagram.
- More than 9.5 billion photos are now sent on the chat app Messenger.
Zuckerberg also said that Facebook-led Internet.org, which aims to spread connectivity to parts of the world that don't have it, has made significant progress in places like Africa.
Sandberg also gave some updates on its ad products, including that there are 2.5 million active advertisers on the service. The price per ad was up 61% in Q3, though total ad impressions fell 10%.
She also subtly burned YouTube:
"People come to Facebook and Instagram because we have the best-performing mobile-video ad products."
The company added 1,000 new employees this quarter for a total of 12,000 employees, up 44% year-over-year.
Facebook also said that it expects its total 2015 capital expenditures to be between $2.5 billion and $2.7 billion.
When asked about Facebook in China, Zuckerberg said it was a "complex situation."
He said.
"You can't have the mission of wanting to connect everyone in the world and leave out one of the biggest countries. We need to try to figure out a way forward on that issue."
He did say that people who think that Facebook isn't in China at all are wrong, though. Although the app isn't allowed in the country, China is "one of the biggest advertising markets" that Facebook has. Big Chinese companies use FB as one of their primary tools to spread info about what they're doing to people outside the country, he said.
COMMENTARY: The complete transcript of Facebook's Q3 2015 earnings call with analysts can be found HERE:
The Instagram Effect
There is one important part of Facebooks business that has not been revealed: Instagram. During the Q3 2015 earnings conference call, Facebook CEO Mark Zuckerberg did not reveal how much of its advertising originated through Instagram. The standalone photo-sharing app has more than 400 million users now and Instagram advertisers now have many of the same targeting capabilities that they get on Facebook.
For Instagram, this was a busy quarter. The community celebrated its five-year anniversary and reached a new milestone of 400 million monthly actives. More than 80 million photos are now shared on Instagram every day, and the pace of adoption among public figures, organizations and people around the world continues to grow really well. When President Obama visited Alaska in September, he used Instagram to document his trip, and this is a great example of how Instagram is changing the way that people see the world.
The result is what many believe will be a very sizable business for Facebook moving forward. Analyst firm MoffettNathanson believes Instagram will bring in $1.8 billion in annual revenue in the next two or three years. SunTrust analyst Robert Peck agrees. He wrote in his pre-earnings report that he believes Instagram’s annual revenue will be greater than $2 billion by 2017.
That’s a lot of revenue considering Facebook isn’t saying much about Instagrams contribution to advertising revenues. But investors are definitely interested, and any news on that front would definitely be good news. The social network has consistently appeased investors of late with significant quarter-over-quarter revenue and growth results.
Mobile continued to drive Facebooks growth. At the end of the third quarter, approximately 1.39 billion people accessed Facebook on mobile devices, up 23% from last year. It is becoming more apparent that Facebooks mobile appls will represent a major source of advertising revenues with numbers like thse: Instagram, Messenger and WhatsApp now exceeding 400 million, 700 million and 900 million monthly actives respectively.
This argument is further strengthened with the fact that Facebook now has more than 2.5 million active advertisers and more than 45 million small and medium-sized businesses actively using Facebook pages. During the third quarter 2015, Facebook continued to focus on helping marketers achieve results using video and carousel ads as well as on Instagram.
Facebook COO Sheryl Sanderg said.
"On Instagram, we think that with Facebook and Instagram, we now have the two most important mobile platforms out there. And what we bring to this is a common ad infrastructure. So Instagram ads, now that we've rolled out as we have this past quarter and gotten to a really good product offering, combined the creative format of Instagram which is very visually compelling and has a lot of engagement from people with the back-end infrastructure and marketer base that Facebook has.
Yeah. To the Instagram question, what we see in the short run is that some of the spend on Instagram is incremental to Facebook and some isn't. Some clients are comfortable with Instagram and bringing a new budget to bear. Some clients are shifting some of their Facebook budget. For us in the medium to long run, we believe that we're not competing between Facebook and Instagram. We're competing with other forms of media. And if you want the most eyeballs and we think the highest ROI, over time we think that will benefit Facebook and Instagram.
The average American adult spends 25% of their media time on mobile, and Facebook and Instagram together continue to account for over one minute in five minutes on mobile in the U.S. Businesses are lagging behind consumers in making this shift to mobile, and we believe we're well positioned to help them catch up.
We're also capitalizing on the shift to mobile by expanding ads on Instagram. This quarter on Instagram, we introduced new ad formats and objectives, opened up our API and launched self-serve ad capabilities. Instagram ads are now available in all countries where we offer Facebook ads, and marketers can manage campaigns across both platforms with the same targeting. We're really pleased with the marketer demand for Instagram ads."
Courtesy of an article dated November 4, 2015 appearing in Business Insider and an article dated November 4, 2015 appearing in RE/CODE
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