Facebook – Q2 FY14: Squeezing out the returns, but DAU growth slowing
Facebook: Unparalleled qualitative information on consumers and unmatched reach makes Facebook a must have for both advertisers and NSA alike. For the moment, the group is managing the migration to lower yield mobile and overseas users while sustaining overall yield growth of +41% YoY and +14% QoQ and somewhat surprisingly, an average yield increase on non-mobile DAU that is actually greater than that for mobile! Having convinced the advertisers to spend, Facebookâ€™s low direct cost component is enabling the marginal revenues to drop down substantially through to margins and even more impressively to cash/marketable securities. Indeed, the ability in H1 to increase revenues by almost $1.1bn with accounts receivable expanding by just $81m is truly impressive. Social media users however are fickle and todayâ€™s cool site may not be so appealing should the owners appear to sell-out to commercial and government interests. Yes, reach is still growing, but at +3% QoQ, not by that much and any reversal could quite quickly see remedial costs thrown at the hole and reverse some of todayâ€™s spectacular performances.
Trading Q2 FY14: Revenues +61%/+$1.097bn to $2.91bn (vs Q1 +72%/+$1.044bn), costs +22%/+$269m to $1.52bn (vs Q1 +32%/+$342m to $1.43bn), EBIT +147%/+$828m to $1.39bn (vs Q1 +188%/+$702m to $1.075bn) and margins +17pts to 48% (vs Q1 +17pts to 43%). Within revenues, advertising (91% of revenues) advanced+67% to $2.68bn (vs Q1 +82% to $2.27bn), including mobile (62% of advertising vs 59% in Q1). Daily active users (DAUs) meanwhile, increased by +19% YoY to 829m (vs Q1 +21% YoY to 802m), including mobile at +39% to 654m (vs Q1 +43% to 609m). After -$469m of CapExp (16.1% of revenues (vs Q1 -$363m/14.5%), Q1 FCF was $872m (vs Q1 $922m) while cash and marketable securities ended the period up +$1.32bn to $13.954bn (vs end Q1 of $12.63bn), albeit not reflected in the P&L with a net interest EXPENSE reported of -$4m (vs Q1 of -$20m)!