Facebook Posts Strong Q2 Earnings As ARPU Grows Across Geographies

Facebook (NASDAQ:FB) posted strong second quarter results yesterday, with revenues increasing 47% year on year (y-o-y) to over $9.3 billion, beating Reuters’ compiled consensus estimates of $9.2 billion. This was driven by a significant rise in advertising revenues, which grew  47% y-o-y to about $9.16 billion. However, this was slightly offset by a decline in Payments & Other Fees collected in the quarter, which was impacted due to a reduction in games played on the Facebook platform on PCs. In terms of the bottom line, the company’s net income grew by 71% y-o-y to $3.89 billion. Below we highlight some key takeaways from the results:

• Mobile revenues continue to drive ads, as mobile ads now make up 87% of advertising revenues and stood at $8 billion in Q2. Mobile ad revenues grew because of increases in both the frequency of ads shown in News Feed and the price per ad.
• Facebook’s average revenue per user (ARPU) also improved driven by growth in North America revenues. ARPU in North America grew at an impressive 38.5% y-o-y to $19 for the quarter, driving the company-wide ARPU up by 25.4% to $4.57 on a quarterly basis.
• The company continues to generate cash flows at an impressive pace despite increased capital investments, which grew to $1.44 billion. During the quarter, Facebook’s free cash flows from operations grew 46% y-o-y to $5.36 billion. This should help the company continue to make investments into newer areas such as its internet.org venture, virtual reality, augmented reality and artificial intelligence.
• In terms of engagement metrics, there was 17.2% y-o-y growth in Facebook’s monthly active users (MAUs) to 2.06 billion. To put this in perspective, this means that over 29% of the world’s population logs in to Facebook on a monthly basis. Facebook’s monthly active user base remained strong across all platforms, including Instagram, WhatsApp and Messenger. The company plans to monetize its messenger user base by selectively showing ads across it.
• The company reiterated the growing importance of video in content consumption on the Facebook platform, which should also help its advertising revenue in the long term. The company is specifically focusing on mobile video ads, as they typically outperform traditional ads in terms of brand awareness and recall. We expect that Facebook will continue to account for a larger share of the rapidly growing digital ad market going forward, as its product offerings have become highly popular with businesses of all sizes.

Please refer to our complete analysis for Facebook here.

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