Facebook Inc (FB) Earnings: Can Growth Persist?

Facebook Inc (NASDAQ:FB)Investors and media reports are increasingly stating that Facebook Inc (NASDAQ:FB)’s user engagement levels have lowered and are issuing bearish views on the company. However, the company is doing a lot of things that will drive a lot of upside in the future. User engagement levels on Facebook are at record highs, the company is growing its top-line revenues rapidly, mobile ad sales have gained tremendous momentum and the value of its Instagram asset is on the rise.

Strong numbers

Facebook’s growth in its user base has been very healthy with global MAUs increasing 23% Y/Y to 1.11 billion. And more than 665 million users get on Facebook Inc (NASDAQ:FB)’s platform every day. Since its IPO one of the major positives behind the Facebook story has been the growth of its mobile user base and monetization.

In the last quarter, Facebook’s revenues stood at $1.46 billion which was a 38% Y/Y increase. The company’s operating income margin for 1Q13 stood at 26% and its net income margin stood at 15%. Facebook Inc (NASDAQ:FB)’s advertising revenues are crucial for the company, and make up roughly 85% of total revenues. Advertising revenues stood at $1.25 billion, which is a 43% Y/Y increase.

The growth in Facebook’s advertising revenues in the last quarter was largely attributable to a 39% rise in the number of ads shown, coupled with a 3% increase in the price per ad. Facebook’s management did state that the company is showing more ads on the News Feed, which commands a much higher price, and thus fueled Facebook’s growth engine. Facebook Inc (NASDAQ:FB) has been able to increase the price per ad, whereas competing Internet firms like Google Inc (NASDAQ:GOOG) and Yahoo! Inc. (NASDAQ:YHOO) are seeing lower prices per ad.

Mobile growth is crucial

In the last quarter, Facebook’s mobile advertising revenues stood at roughly $374 million in 1Q13. However, Facebook’s desktop revenue didn’t grow and was flat Y/Y at $871 million. Many advertisers are platform agnostic, and often choose to reach consumers through mobile devices due to increased usage. The company now has 751 million mobile users, which represents a 54% increase from the previous year.

Driven by its massive popularity and usage on mobile devices, Facebook Inc (NASDAQ:FB)’s annualized mobile monetization saw big increases. In 1Q13, mobile advertising contributed $1.5 billion in annualized revenue run-rate, which is a sizable increase from the last quarter of 2012, when the mobile revenue run-rate stood at $1.2 billion. And investors and analysts are expecting Facebook to increase its mobile ad revenue to as much as $475 million or roughly $1.9 billion annualized. Facebook Inc (NASDAQ:FB)’s mobile monetization is only behind Google Inc (NASDAQ:GOOG). Google earns in excess of $8 billion annually mostly from mobile ads.

Secular consumer trends towards mobile might impact Facebook’s earnings from Payments and Fees, but the segment did grow its revenues by 15% Y/Y to $213 million in 1Q13. However, Facebook’s revenues from Payments might face more headwinds as most of the revenues are booked on PCs.

Facebook’s wildly popular mobile app, Instagram gives the company an edge in terms of enhancing user engagement and providing a better user experience on mobile. Instagram’s user base crossed more than 130 million users, and the company is yet to monetize its audience with ads on videos and photos. Instagram’s platform is thriving with user engagement as member likes reached more than 1 billion a day.