Facebook's Fiscal Q1 2013 Earnings - Mobile Matters

By Tony Rizzo May 02, 2013

Facebook reported its fiscal Q1 2013 financial results, which ended March 31, 2013. The strangest thing took place during the earnings call: Facebook's execs, COO Cheryl Sandberg, CFO Ebersman and the Zuck himself, all sounded like adults – focusing on their business, their strategies, their game plans and how these game plans are affecting and are likely to affect the various ends of Facebook's revenue streams. And the financial analysts on the call asked the intelligent and targeted questions they should be asking of any very large multi-billion dollar public company.

Gone was the almost "circus" environment of Facebook's first earnings call, and with it any sense of a just-launched IPO and a seemingly misguided company that lacked adult supervision. There were no concerns, or questions, about Facebook surviving its own future. Rather, it was a classic earnings call. Facebook is maturing - and it is maturing relatively quickly.

Shareholders should feel "relieved" and perhaps even optimistic. Over the last five weeks or so the stock has been moving between $25 and $28 per share, and as we wrote just before 6 p.m. yesterday, the stock was at $27.40 in after-hours trading, after ranging between $27.31 and $27.92 throughout the day. As of 11:30 a.m. today, the stock is at $28.49. In the end, the company essentially met expectations on the numbers but, more importantly, demonstrated that its mobile strategy is beginning to bear fruit.

Consensus analyst estimates for Q1 2013 were $1.42 billion in revenue and $0.13 earnings per share (EPS) in net income. The company delivered $1.46 billion (an increase of 38 percent compared with $1.06 billion in Q1 2012), beating the revenue estimate, and delivered $0.12 EPS, just missing on net income estimates. There was no untoward, or uninformed, wringing of analyst hands and the stock certainly didn't suddenly go haywire. Investors have taken the financial news in stride and see an overall maturing environment.

CEO Mark Zuckerberg noted, "We've made a lot of progress in the first few months of the year. We have seen strong growth and engagement across our community and launched several exciting products."

Zuckerberg should feel upbeat – the numbers all point in the right direct. One set of numbers in particular, user engagement metrics, stood out nicely and in direct contrast to speculation over the last few months that Facebook users were beginning to suffer from Facebook fatigue. That may be true to some extent, but it is entirely a non-issue relative to Facebook's ability to earn revenue - this was a key message during the earnings call.

Here is an overview of the user engagement numbers for Q1 2013:

  • Daily active users (DAUs) were 665 million on average for March 2013, an increase of 26 percent year-over-year.
  • Monthly active users (MAUs) were 1.11 billion as of March 31, 2013, an increase of 23 percent year-over-year.
  • Mobile MAUs were 751 million as of March 31, 2013, an increase of 54 percent year-over-year.
  • Mobile-only MAUs have jumped to 189 million, a huge increase year over year, when they numbered 83 million. As the chart below shows, these numbers have risen steadily throughout the year and underscore where it will trend going forward.

Key Business Development Highlights

Facebook has pulled together a product development "strategy" that it can now articulate. And yes, it is most certainly one that has mobility at its center. Here's the overview:

  • Launched Facebook Home.
  • Instagram reached 100 million monthly active users in the first quarter of 2013.
  • Launched new advertising products, including Lookalike Audiences, Managed Custom Audiences and Partner Categories. These help marketers improve their targeting capabilities on Facebook, and will be very important to the marketing and advertising community.
  • Partnered with Datalogix, Epsilon, Acxiom and BlueKai to enable marketers to incorporate off-Facebook purchasing data in order to deliver more relevant ads to users. Again, what is important here is the underlying strategy to ensure Facebook will help marketers and advertisers improve targeting.
  • Enhanced the ability to measure advertiser ROI on digital media across the internet through our acquisition of the Atlas Advertising Suite.

The above represents a well-coordinated and well-planned strategy. It would have been interesting for Facebook to already have this in place before the IPO – it’s the lack of this strategy that left many of us wondering about a social media bubble. But Facebook deserves credit for taking its strategy forward.

Below is a comparative revenue chart. With stock-based compensation cost issues becoming less critical, the company is beginning to gain a more substantial overall footing.

Mobile advertising revenue represented approximately 30 percent of advertising revenue for the first quarter of 2013. This is quite important, and we'll note here that any noise from analysts about Facebook not moving quickly enough on the mobility end of things should simply be ignored. The mobile-only MAU chart above strongly suggests that Facebook is headed in the right direction, and there is lots of time to implement the mobile strategy – it isn't something that needs to happen "yesterday."

Finally, the chart below provides a look into EPS. GAAP-based EPS is the important number here – it is also clearly headed in the right direction.

Facebook did not offer guidance for its next fiscal quarter, but we can no doubt anticipate more of the same numbers we are seeing this quarter. A full set of slides used during the call are available for viewing - there are many more numbers available than we've noted in the chart we've provided.

We do anticipate that Facebook will continue to maintain a positive trajectory on revenue, earnings and its share of revenue from mobility.

Edited by Alisen Downey

TechZone360 Senior Editor

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