Reporting periods are exciting times for most investors. How did my stocks do? Did they beat or miss earnings? Are prices up or down? Should I sell my shares or buy more shares?
What is an investor to do after the adrenalin rush of reporting season is over? I find this a great time to take a step back and ask the following question …
Where did my money go?
Today, I am taking a look at Facebook Inc (NASDAQ:FB). For this exercise I need the latest income statements from their 10Q and 10K filings. Let’s also suppose that I just spent $50 buying “stuff.” To determine how Facebook used my money I will divide each sub-category on the income statement by revenue. Using the latest 10Q, this exercise looks like this:
Cost of Revenue ($413 million) / Revenue ($1.458 billion) = .28326 x $50 = $14.16. So, Facebook Inc (NASDAQ:FB) used $14.16 out my purchase to buy the “stuff” that they sold me. Easy enough? Let’s look at the rest of the sub-categories.
Cost of Revenue: $14.16 (28.326%)
Research and Development: $10.05 (20.096%)
Marketing and Sales: $6.96 (13.923%)
General and Administrative: $6.04 (12.071%)
Interest Expense: $0.51 (1.029%)
Other Expense: $0.17 (0.343%)
Income Taxes: $4.60 (9.191%)
Net Income: $7.51 (15.021%)
For their latest quarter, Facebook Inc (NASDAQ:FB) has done a pretty good job of controlling expenses and dropping 15.021% of every revenue dollar to their bottom line. By itself, one quarter does not tell us much however, so let’s turn to their latest 10K report and see what management has been able to do over the last three years.
|Cost of Revenue||24.98%||23.17%||26.80%|
|Research and Development||7.30%||10.46%||27.49%|
|Marketing and Sales||8.46%||10.59%||17.61%|
|General and Administrative||6.99%||8.46%||17.53%|
The numbers we find within the 10K (annual report) are starkly different than those we saw in the 10Q (quarterly report). Take an extra look at…
**R&D which has increased from 7.295% to 27.491%
**Marketing and Sales increased from 8.46% to 17.607%
**G&A increased from 6.991% to 17.528%
The massive increases of the above three sub-categories caused net income to drop, and drop hard, from a high of 30.7% in 2010, to 1.04% in 2012. Results like this cannot make investors very happy in the short run.