Why Facebook's Earnings Are Finally Hitting Their Stride

Why Facebook's Earnings Are Finally Hitting Their Stride
Revenue Soars in 2015 Fourth Quarter
A Look at Facebook's Profitability
Facebook Claims More than 1 Billion Daily Users
Mobile Device Usage Is a Closely Watched Metric
Monthly Active Users Tally Is Growing Rapidly
It's All About Advertising
Mobile Advertising Growth Is Most Important
Analysts Question Active User Growth Over Time
Analysts Aren't Concerned About Ad Revenue Growth
Facebook Is Generating Revenue From Secondary Apps
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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

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

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

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

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

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

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

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

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

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

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.

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