Facebook Third Quarter Earnings Smash Again But Stocks Fell 8 Percent On 2017 Ads Revenue Worries

Following a strong second quarter, Facebook is reporting an even much stronger third quarter. In spite of this, Facebook stock was down about 8 percent yesterday after the social media giant said it will increase spending in 2017 especially ads remain its major source of revenue just like Google.

Here’s a breakdown of the numbers;

Facebook Q3 revenue stood at $7.01b versus $6.92 expected and this is up 56 percent from the same period last year. Earnings per share stood was $1.09 versus $0.92 expected. With respect to user base, here is a quick break down;

  • Daily active users (DAUs)– DAUs were 1.18 billion on average for September 2016, an increase of 17% year-over-year.
  • Mobile DAUs– Mobile DAUs were 1.09 billion on average for September 2016, an increase of 22% year-over-year.
  • Monthly active users (MAUs)– MAUs were 1.79 billion as of September 30, 2016, an increase of 16% year-over-year.
  • Mobile MAUs– Mobile MAUs were 1.66 billion as of September 30, 2016, an increase of 20% year-over-year.

To know how they fared compared to what analyst were expecting, Facebook actually beat expectations. They added 80 million new users in the third quarter and they now have over a billion daily active users.

Third Quarter 2016 Other Financial Highlights

  • Mobile advertising revenue – Mobile advertising revenue represented approximately 84% of advertising revenue for the third quarter of 2016, up from approximately 78% of advertising revenue in the third quarter of 2015.
  • Capital expenditures – Capital expenditures for the third quarter of 2016 were $1.10 billion.
  • Cash and cash equivalents and marketable securities– Cash and cash equivalents and marketable securities were $26.14 billion at the end of the third quarter of 2016.

Ads make up 84 percent of the entire Facebook revenue to stand at $5.7b but Facebook is aggressively pushing for other services as well. They launched Workplace last month to take on other enterprise solutions providers like Salesforce and it might take a while for us to start seeing revenue from there dramatic impact future earnings. There has been some pressure on Facebook by investors to diversify its earnings stream to other ventures and that may be why they are pushing their enterprise and eCommerce services. A year ago, ads revenue was 78 percent of the total revenue and in the second quarter of this year, it was 84 percent and now that figure remains unchanged and is expected to climb further.

So why did the Facebook stock take a hit yesterday?

It’s because Facebook CFO David Wehner said growth rates are likely to decline to decline in future quarters. The CFO also suggested that Facebook may no longer have enough space to display ads in future hence the need to invest heavily in other ventures next year and this means hiring will be up as well. The question here with respect to ads is, just how much ads can be placed in the News Feed? The CFO says not so much.

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