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Facebook Conquering the Mobile World

Posted on Friday, Feb 6th 2015

If there is one company that has figured out how to tackle the monetization capabilities of the rapidly growing mobile advertising market, that company is Facebook (Nasdaq: FB). The social media giant continues to astound the market with its mobile advertising statistics as it repeatedly outperforms market expectations. The recently ended quarter was no different.

Facebook’s Financials

Facebook’s fourth quarter revenues grew 49% over the year to $3.85 billion, ahead of the Street’s forecast of $3.77 billion. EPS of $0.54 was also ahead of the market’s forecast of $0.48 for the quarter.

By segment, Advertising revenues grew 53% over the year to $3.59 billion with mobile advertising revenues accounting for 69% of the advertising revenues. During the same period in the previous year, mobile ad revenues had contributed 53% of advertising revenues for Facebook. For the quarter, revenues from payments and other fees increased 7% to $257 million.

For the year, revenues grew 58% to $12.47 billion. EPS grew from $0.93 a year ago to $1.77 for the fiscal. They ended the year with the Daily active user base of 890 million, recording a growth of 18% over the year. Mobile Daily active users grew 34% to 745 million and Monthly active users increased 13% to 1.39 billion. Mobile Monthly active users grew 26% to 1.19 billion at the end of the quarter.

Facebook has also helped grow Instagram, which ended the quarter with more than 300 million users. Instagram remains a non-revenue earner for Facebook as of now, but that is set to change soon as they work on rolling out ads on the platform in Australia and Canada. Other apps are also seeing strong growth in user base. They ended the quarter with 500 million users for the Messenger app and 700 million for WhatsApp.

Facebook’s Video Opportunity

Facebook is now seeing an increasing popularity within the video segment as well. Its importance was seen during the recent Super Bowl when researchers recorded a significant improvement in Facebook’s video viewing metrics. Traditionally, users flock to YouTube to watch, share, and comment on Super Bowl ads. But according to the latest reports, Facebook is eating into that share. iSpot.tv found that the overall online viewership of Super Bowl ads increased from 69.2 million a year ago to 100 million times. More importantly, while Facebook accounted for a negligible share of this viewing last year, they accounted for 35% of the views this year.

It is not just the Super Bowl. For other ads as well, it appears that Facebook is beginning to eat into YouTube’s pie. For instance, for a Heineken ad featuring Neil Patrick Harris, Facebook generated 6 million views on Facebook compared with 20 million views on YouTube. Facebook themselves reported that video views have grown 74% to over 3 billion video views per day. To continue to build on this momentum, Facebook announced the acquisition of video compression company QuickFire Networks. Through the acquisition, Facebook wants to simplify the process of getting users to upload videos directly to their site instead of users linking to other video streaming sites such as YouTube. The terms of the deal were not disclosed. QuickFire Networks has been known for the ability to reduce video file size at upload times almost ten times faster than other similar services.

Facebook’s Rising Costs and Long-Term Vision

Recently, Facebook shared their long-term goals with the investors. In the next three years, they want to create better services for people and businesses, while growing their community. The five-year plan focuses on making successful businesses out of WhatsApp and Messenger. Finally, the 10-year plan involves helping every person in the world obtain an Internet connection and then leveraging Oculus for a virtual-reality world.

But all of these plans involve rising costs. For the recently ended quarter, Facebook saw expenses grow 87% over the year to $2.7 billion. Facebook expects capital expenditures for the year to grow from $1.83 billion in 2014 to $2.7 billion-$3.2 billion in 2015. They continue to invest in talent and their employee base grew 45% last year to 9,200. The aggressive hiring is expected to continue as Facebook had over 1,200 open positions on their site earlier this month.

Additionally, Facebook is investing in areas such as data and video to continue to address the growing competition posed by Google, Twitter, and others. Like Google, they are building satellites and drones to increase the Internet connectivity in the far reaches of the world. And the market knows that Facebook is in no big rush to monetize its recent big ticket acquisitions of WhatsApp, Instagram, and Oculus.

Facebook’s stock is trading at $75.61 with a market capitalization of $211.65 billion. It touched a record high of $82.17 in December 2014.

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