Facebook’s red-hot status update

An $11 billion warchest and zero long-term debt put Facebook’s development and innovation on the front foot against its peers – and there are significant avenues for growth it has yet to explore.

So much for the reports that users are deserting Facebook in droves – the company’s fourth-quarter results suggest anything but. For the three months ending December 31 average daily users sat at a staggering 757 million, up from 618 million year-on-year, driven by growth in all key regions: Asia Pacific, the United States, Canada and Europe. On mobile, Facebook for the quarter saw average daily users of 556 million, an increase of over 50 per cent on the prior year.

Forgive the hyperbole, but the growth demonstrated by Facebook – now 10 years old – is worthy of praise.

Facebook seems to be in the news every day, but rarely is this press at the direction of the company. Mainly, Facebook is used as a PR device for others looking for their 15 minutes of press fame – either via predicting the end of the brand, or by those looking to attach themselves to their continued success of the company.

Facebook, especially since its IPO, has shied away from press and focused on product development and evolving its operations. Its consistently excellent results demonstrate that this approach is working.

For the three months to December 31, the site drew an average monthly user base of 1.228 billion people globally. And while user numbers continue to steadily grow, it’s revenue where the company continues to make incredible gains.

Fourth-quarter revenue totalled $US2.585 billion, up 63 per cent year-on-year and resulting in a calendar year 2013 revenue figure for Facebook of $US7.9 billion. GAAP income pre-tax for the quarter was a record $US1.13 billion, at a staggering operating margin of 44 per cent.

But this only the beginning of a longer-term vision. Facebook’s $US11 billion-plus warchest and zero long-term debt will allow it to continue to develop and innovate at a speed and potency virtually none of its competitors will be able to match.

And the benefits of scale that come with annual revenues in excess of $US7 billion are rapidly starting to become more and more evident. Costs in all major operating areas as a percentage of revenue dropped significantly year-on-year for the final quarter: cost of revenue was down from 25 per cent to 19 per cent, research and development down from 19 per cent to 16 per cent, marketing and sales down from 12 per cent to 11 per cent and general and administrative costs down from 11 per cent to 10 per cent.

Growth in Asia, of which Australia is a major contributor, is outperforming the rest of the world. Asia contributed $US1063 million of revenue to Facebook in 2013, up from $US605 million in 2012.

Yahoo, considered by many to have a strong position in Asia Pacific, was down 10 per cent revenue-wise in Q4 in the region. Facebook was up over 70 per cent for the same period, and in Q4 delivered 40 per cent more revenue than Yahoo. This time last year, Yahoo was a much bigger player in Asia than Facebook. Now it has reversed.

It’s important to consider that Facebook still has significant revenue opportunities as yet unexplored. Video and a third-party ad network are just two areas that offer Facebook large-scale opportunity it could easily turn into high-margin, multi-billion dollar revenue streams. Instagram, as yet virtually untouched by advertising or any other form of monetisation, and its reported 75 million-plus daily users, is another.

The market is, as expected, buoyant as a result of Facebook’s earnings announcement. The stock closed on Friday morning at $US61.27, or 14.46 per cent higher, after hitting an earlier high of $US62.30, or 16 per cent higher – well ahead of its previous top of $US59.31

And it’s with good reason too – Facebook is red hot right now.

Want access to our latest research and new buy ideas?

Start a free 15 day trial and gain access to our research, recommendations and market-beating model portfolios.

Sign up for free

Related Articles