Facebook Q4: Ad Revenue Growth Boosts Top Line

by Trefis Team
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Facebook (NASDAQ:FB) posted strong fourth quarter results on Wednesday, January 31, with revenues increasing 47% year on year (y-o-y) to nearly $13 billion, beating Reuters’ compiled consensus estimates of $11.6 billion. This was driven by a significant rise in advertising revenues, which grew 48% y-o-y to about $12.8 billion. Profitability for the company also improved, as its operating income grew by 61% y-o-y to $7.35 billion. However, its income taxes increased during the quarter as the tax cut and job act came into effect. Below we highlight some key takeaways from the results. We have created an interactive dashboard, which illustrates Facebook’s Q4 results as well as expectations for the year ahead. You can modify drivers such as division revenues, operating profit margin and effective tax rate to create new revenue and EPS scenarios.

  • Mobile revenues continue to drive ads, as mobile ads now make up 89% of advertising revenues and grew by 57% y-o-y to $11.4 billion in Q4.
  • Facebook’s average revenue per user (ARPU) also improved driven by growth in North America revenues. ARPU in North America grew at an impressive 36% y-o-y to $26.3 for the quarter, driving the company-wide ARPU up by 29.4% to $6 on a quarterly basis.
  • In terms of engagement metrics, there was 15% y-o-y growth in Facebook’s monthly active users (MAUs) to 2.13 billion. To put this in perspective, this means that nearly 54% of the world’s internet users log 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 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. During the quarter, Mobile-first video contributed 50% to overall video ad revenues. 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.
  • The number of advertisers on Facebook and its other platform has also grown, as the company has implemented a new mechanism to showcase ads in videos and alongside premium content. According to the company, Facebook now has over 70 million active businesses, and Instagram has over 25 million businesses. Together, these account for 6 million advertisers on Facebook and 2 million advertisers on Instagram.

We are in the process of updating our Facebook model. At present, we have $165 price estimate for the stock, which is slightly below the current market price.

Please refer to our complete analysis for Facebook here.

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