February 12, 2015    2 minute read

Is Facebook Future-proof? Quarterly Earnings Review

   February 12, 2015    2 minute read

Is Facebook Future-proof? Quarterly Earnings Review

On January 28th, Facebook Inc. reported quarterly revenue that beat analysts’ estimates, fuelled by the mobile advertising business. In fact, the social network’s fourth-quarter sales totalled $3.85 billion (including $3.594 billion from advertising and just $0.257 billion from payments and other fees), exceeding the average analysts’ prediction of $3.77 billion. In particular, the regions of US & Canada and Europe represented the most profitable areas, generating $1.864 and $1.030 billion respectively. Total revenues increased by approximately 20.2% from the previous quarter and by 49% compered to the fourth quarter of 2013. However, the growth of sales was slower than 63% with respect to the same benchmark. Finally, net income rose to $701 million in the fourth quarter, up 34% from $523 million a year ago.

Revenue Catalysts

The California-based company is now increasingly selling promotions on mobile applications and websites with a new technology to track individuals’ responses to the ads, irrespective of what device they are using, a technique known as ‘conversion lift measurement,’ and it enables advertisers track the behaviour of two groups of people: users that saw the ad campaign on Facebook, and users with the same demographics that did not. If the first group buys more of a product, the marketers know their Facebook promotion worked.

Expenses and Capital Expenditures

Facebook’s expenses soared 87% to $2.72 billion during the last quarter of 2014. Such high expenses had an impact on profit. Facebook reported an operating margin of 29%, compared with 44 % a year earlier. In particular, the R&D expenditure (as a percentage of revenues) rose from 19% to 29%, while sales and marketing expenses accounted for 16%. Moreover, the social network capital expenditure amounted to $517 million in Q4 of 2014 with an overall figure of $1.831 billion in 2014, 33.3% higher than 2013.

These expenses resemble those of others web companies, including Google Inc. and Amazon.com Inc., which are also investing in ventures, from drones to cloud computing, that is technologies outside of their core businesses. Facebook is competing with these firms and has begun with a streak of acquisitions. In particular, it is worth highlighting Oculus VR Inc. and WhatsApp Inc, which have the potential reshape Facebook’s future business model and its revenue streams.

The Future

After figuring out how to make profit from the Instagram and WhatsApp, Zuckerberg said he wants to connect the remainder of the world’s population to the Internet in 10 years, focusing on artificial intelligence and virtual reality.

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