Facebook posted strong third-quarter results on Wednesday, November 1, with revenues increasing 47% year on year (y-o-y) to over $10.3 billion, beating Reuters’ compiled consensus estimates of $9.84 billion. This was driven by a significant rise in advertising revenues, which grew 49% y-o-y to about $10.14 billion. However, this was slightly offset by a decline in Payments & Other Fees collected in the quarter. Profitability for the company improved, as its net income grew by 79% y-o-y to $4.70 billion. Below we highlight some key takeaways from the results:
- Mobile revenues continue to drive ads, as mobile ads now make up 88% of advertising revenues and grew by 57% y-o-y to $8.9 billion in Q3. Mobile ad revenues grew because of increases in both the frequency of ads shown in News Feed and the price per ad. While the average price per ad increased 35%, the number of ad impressions served increased 10% during the quarter, driven by Feed ads across Facebook and Instagram.
- Facebook’s average revenue per user also improved driven by growth in North America revenues. ARPU in North America grew at an impressive 35% y-o-y to $21 for the quarter, driving the company-wide ARPU up by 26.4% to $5 on a quarterly basis.
- The company continues to generate cash flows at an impressive pace despite increased capital investments, which grew to $1.75 billion. During the quarter, Facebook’s free cash flows from operations grew 51% y-o-y to $6.13 billion. This should help the company continue to make investments into newer areas such as virtual reality, augmented reality and artificial intelligence.
- In terms of engagement metrics, there was 16% y-o-y growth in Facebook’s monthly active users (MAUs) to 2.07 billion. To put this in perspective, this means that over 53% of the world’s internet users login 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. 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 6 million active advertisers, and Instagram has over 2 million advertisers.
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.
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