Why Facebook's Earnings Are Finally Hitting Their Stride

 
 
By Don Reisinger  |  Posted 2016-01-29 Print this article Print
 
 
 
 
 
 
 
 
 
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    Why Facebook's Earnings Are Finally Hitting Their Stride
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    Why Facebook's Earnings Are Finally Hitting Their Stride

    We look closely at Facebook's earnings to see why 2015 was a banner year for the social networking giant and why 2016 could be another record-breaker.
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    Revenue Soars in 2015 Fourth Quarter
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    Revenue Soars in 2015 Fourth Quarter

    Revenue is arguably the best indicator for Facebook's success in 2015. The company's revenue for the year hit $17.9 billion, up 44 percent from 2014. Facebook's performance was similarly impressive in the fourth quarter, jumping to $5.8 billion from $3.9 billion in the year-earlier period.
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    A Look at Facebook's Profitability
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    A Look at Facebook's Profitability

    Facebook's profitability exceeded the Street's expectations, topping $3.7 billion for 2015 and $1.6 billion for the fourth quarter, alone. It appears that Facebook's profitability growth is speeding up, which will only add to the billions in cash the company already has.
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    Facebook Claims More than 1 Billion Daily Users
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    Facebook Claims More than 1 Billion Daily Users

    Facebook provided a handy update for its user tallies. First up, Facebook revealed that it has more than 1 billion people who log on to its service from a desktop or mobile device at least once per day. That figure was up 17 percent compared to the end of 2014, when the company was inching its way toward a billion daily active users.
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    Mobile Device Usage Is a Closely Watched Metric
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    Mobile Device Usage Is a Closely Watched Metric

    Mobile devices seem to be the most likely way for users to access Facebook. The company revealed that 934 million people access its service each day from a mobile device, like a smartphone or tablet—a 25 percent increase year over year. What's more, Facebook says that its monthly mobile active user tally now stands at 1.4 billion, up 21 percent compared to 2014.
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    Monthly Active Users Tally Is Growing Rapidly
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    Monthly Active Users Tally Is Growing Rapidly

    The number most analysts and shareholders want to know, however, is Facebook's total monthly active user amount. That metric has been used for years to determine Facebook's growth, and like everything else at the company, it's on the rise. According to Facebook, it had 1.6 billion monthly active users in December, an increase of 14 percent compared to December 2014. It may not be long until Facebook reaches 2 billion users.
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    It's All About Advertising
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    It's All About Advertising

    A look at Facebook's earnings report reveals quite clearly just how important advertising is to the company. In the fourth quarter, Facebook's advertising revenue rose 57 percent compared to the prior year, hitting $5.6 billion. To put that into perspective, Facebook posted total revenue of $5.8 billion during the period. The balance came from "payments and other fees."
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    Mobile Advertising Growth Is Most Important
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    Mobile Advertising Growth Is Most Important

    Further analysis of Facebook's earnings shows that while advertising is crucial to its operation, it's really mobile advertising that drives its success. Facebook revealed that during the fourth quarter, 80 percent of its total advertising revenue came from mobile ads. In the fourth quarter of 2014, that figure stood at 69 percent, and analysts say there is no sign of it slowing down. Image 7: Please use this image:
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    Analysts Question Active User Growth Over Time
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    Analysts Question Active User Growth Over Time

    Wedbush Securities analyst Michael Pachter and other analysts question whether Facebook will be able to maintain its rapid user growth over an extended period. In a statement to investors, Pachter said that it's "clear that Facebook cannot grow users indefinitely," but as its active user count slows, that may not be such an issue.
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    Analysts Aren't Concerned About Ad Revenue Growth
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    Analysts Aren't Concerned About Ad Revenue Growth

    Following on his premise, Pachter argues that Facebook will be able to generate far more advertising revenue on its users for an "indefinite" period. He noted that Facebook's global average advertising revenue per user was $3.60 during the fourth quarter. Pachter argues that Facebook's ad growth could see that figure rise to $20 within the next few years. Facebook's revenue, in other words, could be exponentially higher by the start of the next decade.
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    Facebook Is Generating Revenue From Secondary Apps
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    Facebook Is Generating Revenue From Secondary Apps

    Facebook's success wasn't just about the social network. In fact, analysts were extremely impressed with the company's other platforms. They were pleased to see that Facebook is starting to make money from its 400 million Instagram users and argue it could help the company generate an additional $4 billion to $5 billion in the next two years. WhatsApp and Facebook Messenger are also growing rapidly, which analysts say, will only contribute to the revenue the company generates. Simply put, expect to see Facebook make much more cash in the coming years.
 

For much of its early history as a publicly traded company, Facebook was the neglected stepchild of the stock market after technical glitches marred its initial public offering in May 2012. Facebook stock barely achieved the IPO price set by market underwriters on its first day of trading. The glitches spawned investigations and lawsuits against the underwriters by investors who claimed they weren't provided with all the available earnings estimates for the company in advance of the IPO. As a result, many investors shied away from the stock, which underperformed the market for many months before the social networking giant's earnings growth showed the company in a more positive light. But Facebook's stock is now heading toward new highs after the company announced on Jan. 27 that its revenue was up 44 percent in 2015 compared with the previous full year. Facebook co-founder and CEO Mark Zuckerberg noted in the company earnings report that there are no signs that the current growth trend will disappear any time soon. This slide show takes a closer look at Facebook's earnings to see why 2015 was a banner year for the social network and why 2016 could be another record-breaker.

 
 
 
 
 
Don Reisinger is a freelance technology columnist. He started writing about technology for Ziff-Davis' Gearlog.com. Since then, he has written extremely popular columns for CNET.com, Computerworld, InformationWeek, and others. He has appeared numerous times on national television to share his expertise with viewers. You can follow his every move at http://twitter.com/donreisinger.
 
 
 
 
 
 

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