Last evening, Facebook announced its Q3 2013 financial results. The now regular compliment of CEO Mark Zuckerberg (News - Alert), chief operating officer Sheryl Sandberg and chief financial officer David Ebersman, handled the call. By all accounts the results were outstanding. The company beat consensus analyst estimates on both revenue and net income, and when the numbers came out, the stock did a quick but short uptick. By the end of the call however the stock had turned down.
Before we get to the numbers themselves, let's note a couple of things. First, it appears that Facebook (News - Alert) is now experimenting with the idea of literally tracking every user's cursor movements when they are on Facebook pages. Literally. Facebook now plans to uncover exactly where that curser is headed at all times, where it sits, and what it means the user is doing. It's all still a research project, and there is no mention of whether or not users will have the option to allow or not allowing tracking should it ever be rolled out.
This is something marketers would surely love to know. Sure, it would be useful in the aggregate, but how will users feel if Facebook helps marketers target them due to mouse movements? We ourselves are not pleased with the idea. We wanted to mention this here not because it was material to the earnings call but to suggest that Facebook is literally turning over every possible stone in its endless hunt to know its users and to help marketers "target, target, and target" its users.
The second thing we'll note that was in fact quite material to the earnings call, is that Facebook acknowledged for the first time in its history that it saw a decline in that total number of teenagers actively using Facebook. In spite of the all the good news, Facebook delivered prior to making that comment, the news caused that old knee jerk, hand-wringing reaction that we decry all the time, and the stock immediately gave up the gains it had made up to that point in after-hours trading on the news being shared.
We won't go through all the numbers here. Facebook provides extensive charts and details on its investor website - open a PDF and it is all there for you. But here are the relevant numbers:
Facebook had its first $2 billion quarter for revenue, and a lot of that growth was driven by mobile usage. Desktop use dipped slightly for first time, though Ebersman suggested the dip was essentially meaningless in terms of any material impact.
It is well worth noting that though CEO Mark Zuckerberg spoke enthusiastically about bringing the "next 5 billion users" into the Facebook fold, the truth of the matter is that growth rate is slowing. Yet revenue is growing and importantly revenue per ad is growing. This means that Facebook is effectively finding ways to monetize its users - especially through mobile.
It needs to be underscored that the growth in revenue from $0.25 per mobile user a year ago to over a dollar today is significant. This is the metric that caused so many analysts to lose their minds a year ago. Clearly Facebook is doing some things right. We expected Facebook would accomplish this and noted it when we covered Facebook's inaugural earnings call.
It is also worth noting that user growth rates in the United States and Canada - which are critical as these are the key countries that deliver revenue - are slowing significantly. From a 20,000 foot perspective this makes sense of course as the total available users are ultimately a finite number and these markets are no doubt reaching saturation points.
Total daily active users in the U.S. and Canada only increased by 2 million users in Q3 2013, from 142 million to 144 million. Clearly one of Facebook's challenges is to deliver alternative high revenue users in other global regions. Mobility will be key to accomplishing this as many of these other global regions only access the Web, the Internet and hence Facebook through mobile devices.
Sandberg referred to Facebook getting hugely better at "targeting" its audiences for its advertisers. That magic word shows up again and again. Sandberg also noted that, according to comScore Facebook users spend more time using Facebook than they do YouTube, Pandora (News - Alert), Yahoo, Twitter, Pinterest, Tumblr, AOL, and LinkedIn - combined. That is a substantial statistic.
We're going to simply wrap it up here. The bottom line is Facebook is trending up in all the right ways, across all the right channels (mobile!). It will continue to do so. The full end-of-year numbers are going to be very interesting, and we will return then with a much deeper dive. For now, regardless of new hand-wringing over a meaningless dip in teenage users, all is looking well on the Facebook front.
We recall noting that Facebook was quite a buy at $19 during that first earnings call. It isn't quite a buy of that nature at this point but there is still substantial upside to be had. Mobile will drive the way.