Facebook Q4 2014 Results

Facebook Q4 2014 Results

investor.fb.com

Non-GAAP Measures In addition to U.S. GAAP financials, this presentation includes certain non-GAAP financial measures. These non-GAAP measures are in addition to, not a substitute for or superior to, measures of financial performance prepared in accordance with U.S. GAAP. A reconciliation of non-GAAP financial measures to the corresponding GAAP measures is provided in the appendix to this presentation.

2

Daily Active Users (DAUs) In Millions Rest of World Asia-Pacific Europe US & Canada 665 618

161

180

802

699

195

728

208

829

864

757

216

890

256

263

233

244

228

242

253

181

200

153

167

189

216

182

188

195

203

206

212

217

169

179

135

139

142

144

147

150

152

155

157

Q4'12

Q1'13

Q2'13

Q3'13

Q4'13

Q1'14

Q2'14

Q3'14

Q4'14

Q4'12

Q1'13

Q2'13

Q3’13

Q4'13

Q1'14

Q2'14

Q3'14

Q4'14

59%

60%

61%

61%

62%

63%

63%

64%

64%

DAUs / MAUs

Please see Facebook's most recent quarterly or annual report filed with the SEC for definitions of user activity used to determine the number of our DAUs, mobile DAUs, MAUs, and mobile MAUs. The number of DAUs, mobile DAUs, MAUs, and mobile MAUs do not include Instagram or WhatsApp users unless they would otherwise qualify as such users, respectively, based on their other activities on Facebook.

3

Mobile Daily Active Users (Mobile DAUs) In Millions

745 703 654 609 556 507 469

425 374

Q4'12

Q1'13

Q2'13

Q3'13

Q4'13

Q1'14

Q2'14

Q3'14

Q4'14


4

Monthly Active Users (MAUs) In Millions Rest of World Asia-Pacific Europe US & Canada

1,056 304

1,110 327

1,155 346

1,189 362

1,228

376

1,393

1,317

1,350

395

411

423

410

426

449

1,276

436

298

319

339

351

368

390

261

269

272

276

282

289

292

296

301

193

195

198

199

201

202

204

206

208

Q4'12

Q1'13

Q2'13

Q3'13

Q4'13

Q1'14

Q2'14

Q3'14

Q4'14


5

Mobile Monthly Active Users (Mobile MAUs) In Millions

1,189 1,070

1,124

1,008 945

874 819 751 680

Q4'12

Q1'13

Q2'13

Q3'13

Q4'13

Q1'14

Q2'14

Q3'14

Q4'14


6

Mobile-Only Monthly Active Users (Mobile-Only MAUs) In Millions

526 456 399 341 296

Q4'13

Q1'14

Q2'14

Q3'14

Q4'14

Mobile-only MAUs are defined as users who accessed Facebook solely through mobile apps or mobile versions of our website, or used our Messenger app, in the last 30 days of the given quarter. The number of mobile-only MAUs do not include Instagram or WhatsApp users unless they would otherwise qualify as such users based on their other activities on Facebook.

7

Revenue In Millions Payments and Other Fees Advertising

$3,851 $257 $3,203 $2,910 $2,585

$2,502

$241

$237

$246

$234

$2,016 *

$1,585 $256 *

$1,458

$1,813

$218

$3,594

$214

$213

$2,676 $1,599

$1,329

$1,245

Q4'12

Q1'13

Q2'13

$2,344

$2,265

Q4'13

Q1'14

$2,957

$1,798

Q3'13

Q2'14

Q3'14

*In the fourth quarter of 2012 we recognized revenue from four months of Payments transactions for accounting reasons detailed on pages 47 and 48 of our Form 10-K filed on February 1, 2013.

8

Q4'14

Revenue by User Geography In Millions Rest of World Asia-Pacific Europe US & Canada

$3,851

$403 $3,203 $2,910

$2,016 $1,585 $167 $198 $440

$1,458 $159 $197

$1,813

$238

$213 $247

$278

$505

$2,585

$2,502

$347

$311

$271

$431

$341

$354

$727

$353

$554

$492 $1,030 $844

$824 $698

$538 $1,864

$423

$780

$679

$848

$962

Q4'12

Q1'13

Q2'13

Q3'13

$1,206

$1,179

$1,308

Q4'13

Q1'14

Q2'14

$1,514

Revenue by user geography is geographically apportioned based on our estimation of the geographic location of our users when they perform a revenuegenerating activity. This allocation differs from our revenue by geography disclosure in our consolidated financial statements where revenue is geographically apportioned based on the location of the marketer or developer.

9

Q3'14

Q4'14

Advertising Revenue by User Geography In Millions Rest of World Asia-Pacific Europe US & Canada

$3,594 $394 $2,957

$2,676 $2,344

$1,798 $1,329 $156 $168 $374

$1,245 $150 $176

$1,599

$229

$202 $225

$255

$451

$2,265

$300

$262

$318

$333

$336

$552

Q4'12

Q1'13

$343 $469

$960

$408 $783 $757

$658

$631

$482 $1,709

$367

$631

$531

$721

$832

Q2'13

Q3'13

$1,068

$1,039

$1,175

Q4'13

Q1'14

Q2'14

Revenue by user geography is geographically apportioned based on our estimation of the geographic location of our users when they perform a revenuegenerating activity. This allocation differs from our revenue by geography disclosure in our consolidated financial statements where revenue is geographically apportioned based on the location of the marketer or developer.

10

$1,362

Q3'14

Q4'14

Payments & Other Fees Revenue by User Geography In Millions Rest of World Asia-Pacific Europe US & Canada $256 $241

$11

$30 $66

$149

Q4'12*

$213

$214

$218

$9

$11

$9

$21

$22

$237

$11

$234

$9

$23

$21

$11

$23

$246 $10

$23

$23 $61

$69

$67

$67

$56

$54

$56

$127

$127

$130

$138

$140

$133

Q1'13

Q2'13

Q3'13

Q4'13

Q1'14

Q2'14

$9

$23

$70

$152

$155

Q3'14

Q4'14

Revenue by user geography is geographically apportioned based on our estimation of the geographic location of our users when they perform a revenue-generating activity. This allocation differs from our revenue by geography disclosure in our consolidated financial statements where revenue is geographically apportioned based on the location of the marketer or developer. *In the fourth quarter of 2012 we recognized revenue from four months of Payments transactions for accounting reasons detailed on pages 47 and 48 of our Form 10-K filed on February 1, 2013.

11

$257

Average Revenue per User (ARPU) Payments and Other Fees Advertising

Worldwide

US & Canada

$9.00

$2.81 $2.14 $0.20

$2.24 $2.00

$0.18

$2.40

$0.19

$0.18

$0.19

$7.39 $6.03

$5.85

$0.69

$0.69

$6.44

$0.74

$0.66

$8.26

$2.62

Europe $2.61 $0.25

$2.44

$3.45 $2.84

$2.87

$0.23

$0.21

$1.94

$1.81

Q4'13

Q1'14

$2.06

Q2'14

$1.08 $0.95

$0.93

$0.06

$0.06

$2.21

Q4'13

Q1'14

$2.61

$2.66

Q2'14

Q3'14

Q4'14

$0.88

$0.88

Q4'13

Q1'14

$5.34

$5.16

Q4'13

Q1'14

$5.79

$6.64

Q2'14

Q3'14

$0.84

$0.86

$0.85

$0.03

$0.03

$0.02

$0.83

$0.82

Q2'14

Q3'14

Rest of World $1.18

$1.27 $0.05

$0.06

$0.06

$0.70

Q4'14

$0.94 $0.02

$0.02

$3.22 $2.36

Q4'14

Asia-Pacific

$0.23

$0.23

$2.22

Q3'14

$0.75

$1.02

Q2'14

$1.12

Q3'14

$1.21

$0.81

$0.92

$0.68

Q4'14

Q4'13

Q1'14

Revenue by user geography is geographically apportioned based on our estimation of the geographic location of our users when they perform a revenue-generating activity. This allocation differs from our revenue by geography disclosure in our consolidated financial statements where revenue is geographically apportioned based on the location of the marketer or developer. Please see Facebook’s most recent quarterly or annual report filed with the SEC for the definition of ARPU. 12

12

Q4'14

Expenses as a % of Revenue Amortization of intangibles Share-based compensation + payroll tax expenses related to share-based compensation All other expenses

Cost of Revenue 19%

18%

Q4'13

Research & Development

18%

16%

17%

15% Q2'14

16% Q3'14

Marketing & Sales 11%

13%

17%

8%

8%

9%

10%

9%

11%

11%

Q4'13

Q1'14

Q2'14

Q3'14

Q4'14

15% Q4'14

12%

10%

11%

10%

Q4'13

Q1'14

Q2'14

19%

18%

16% 7%

18%

Q1'14

18%

29% 18%

8%

General & Administrative 12%

16% 3% 3%

10%

7%

7%

8%

9%

10%

11%

4% 5%

5%

5%

6%

6%

Q3'14

Q4'14

Q4'13

Q1'14

Q2'14

Q3'14

Q4'14

13

Income from Operations In Millions GAAP Income from Operations $1,390 $1,133

$1,075

Q4'13

Q1'14

$1,397 $1,133

$736 $562 $373

Q1'13

Q2'13

Q3'13

Q2'14

Q3'14

Q4'14

Non-GAAP Income from Operations $2,219

$596

Q1'13

$830

Q2'13

$1,498

$1,415

Q4'13

Q1'14

$1,753

$1,820

Q2'14

Q3'14

$1,024

Q3'13

Non-GAAP income from operations excludes share-based compensation expense, payroll tax expenses related to share-based compensation, and amortization of intangibles—see the Appendix for a reconciliation of this non-GAAP measure to GAAP income from operations.

14

Q4'14

Operating Margin GAAP Operating Margin

26%

Q1'13

31%

Q2'13

37%

44%

43%

48%

44% 29%

Q3'13

Q4'13

Q1'14

Q2'14

Q3'14

Q4'14

58%

57%

60%

57%

58%

Q4'13

Q1'14

Q2'14

Q3'14

Q4'14

Non-GAAP Operating Margin

41%

Q1'13

46%

Q2'13

51%

Q3'13

Non-GAAP operating margin excludes share-based compensation expense, payroll tax expenses related to share-based compensation, and amortization of intangibles—see the Appendix for a reconciliation of this non-GAAP measure to GAAP operating margin.

15

Effective Tax Rate GAAP Effective Tax Rate

($ in millions) GAAP income before provision for income taxes GAAP provision for income taxes Effective Tax Rate

Q1 2013 $ 353 134

Q2 2013 $ 545 212

Q3 2013 $ 726 301

Q4 2013 $ 1,130 607

Q1 2014 $ 1,075 433

Q2 2014 $ 1,386 595

38%

39%

41%

54%

40%

43%

40%

37%

Q1 2013 576 241

Q2 2013 813 294

Q3 2013 1,014 348

Q4 2013 1,495 681

Q1 2014 1,415 489

Q2 2014 1,749 627

Q3 2014 1,759 610

Q4 2014 2,200 682

42%

36%

34%

46%

35%

36%

35%

31%

Q3 Q4 2014 2014 $ 1,336 $ 1,114 530 413

Non-GAAP Effective Tax Rate

($ in millions) Non-GAAP income before provision for income taxes Non-GAAP provision for income taxes Effective Tax Rate

16

Net Income In Millions GAAP Net Income $791

$806

Q2'14

Q3'14

$642

$219

Q1'13

$333

Q2'13

$425

Q3'13

$701

$523

Q4'13

Q1'14

Q4'14

Non-GAAP Net Income $1,518

$335

Q1'13

$519

Q2'13

$666

Q3'13

$814

$926

Q4'13

Q1'14

$1,121

$1,149

Q2'14

Q3'14

Non-GAAP net income excludes share-based compensation expense, payroll tax expenses related to share-based compensation, related income tax adjustments, and amortization of intangibles—see the Appendix for a reconciliation of this non-GAAP measure to GAAP net income.

17

Q4'14

Diluted Earnings Per Share GAAP Diluted Earnings Per Share $0.30

$0.30

$0.25

$0.25

$0.20 $0.09

Q1'13

$0.13

Q2'13

$0.17

Q3'13

Q4'13

Q1'14

Q2'14

Q3'14

Q4'14

Non-GAAP Diluted Earnings Per Share $0.54

$0.21

$0.27

$0.32

$0.35

Q4'13

Q1'14

$0.43

$0.43

Q2'14

Q3'14

$0.13

Q1'13

Q2'13

Q3'13

Non-GAAP diluted earnings per share excludes share-based compensation expense, payroll tax expenses related to share-based compensation, related income tax adjustments, and amortization of intangibles—see the Appendix for a reconciliation of this non-GAAP measure to GAAP diluted earnings per share.

18

Q4'14

Capital Investments In Millions Property and equipment acquired under capital leases Purchases of property and equipment

$1,831 $1,575 $340

$1,373

$1,831 $483

$517

$483

$517

Q4'13

Q4'14

$1,235

2012

Quarterly

$1,362

2013 Annual

19

2014

Appendix

Reconciliations Income from Operations (in millions) GAAP income from operations Share-based compensation expense Payroll tax expenses related to share-based compensation Amortization of intangible assets Non-GAAP income from operations

Q1'13 373 170 20 33 $ 596

Operating Margin GAAP operating margin Share-based compensation expense Payroll tax expenses related to share-based compensation Amortization of intangible assets Non-GAAP operating margin

Net Income (in millions) GAAP net income Share-based compensation expense Payroll tax expenses related to share-based compensation Amortization of intangible assets Income tax adjustments Non-GAAP net income

Diluted Earnings Per Share GAAP diluted earnings per share Non-GAAP adjustments to net income Non-GAAP diluted earnings per share

Q2'13 562 224 8 36 $ 830

$

$

Q1'13 26% 12% 1% 2% 41%

Q3'13 736 239 12 37 $ 1,024

Q4'13 $ 1,133 273 53 39 $ 1,498

Q1'14 $ 1,075 274 25 41 $ 1,415

Q2'14 $ 1,390 314 8 41 $ 1,753

Q3'13 37% 12% 1% 2% 51%

Q4'13 44% 11% 2% 2% 58%

Q1'14 43% 11% 1% 2% 57%

Q2'14 48% 11% 0% 1% 60%

$

Q2'13 31% 12% 0% 2% 46%

Q1'13 219 170 20 33 (107) $ 335

$

Q1'13 0.09 0.04 $ 0.13

Q2'13 333 224 8 36 (82) $ 519

$

Q2'13 0.13 0.08 $ 0.21

$

$

21

Q3'13 425 239 12 37 (47) $ 666

$

Q3'13 0.17 0.10 $ 0.27

$

Q4'13 523 273 53 39 (74) $ 814

$

Q4'13 0.20 0.12 $ 0.32

$

Q1'14 642 274 25 41 (56) $ 926

$

Q1'14 0.25 0.10 $ 0.35

$

Q2'14 791 314 8 41 (33) $ 1,121

$

Q2'14 0.30 0.13 $ 0.43

$

Q3'14 Q4'14 $ 1,397 $ 1,133 353 896 11 13 59 177 $ 1,820 $ 2,219

Q3'14 44% 11% 0% 2% 57%

Q4'14 29% 23% 0% 5% 58%

Q3'14 Q4'14 806 $ 701 353 896 11 13 59 177 (80) (269) $ 1,149 $ 1,518

$

Q3'14 Q4'14 0.30 $ 0.25 0.13 0.29 $ 0.43 $ 0.54

$

Reconciliations (continued) ($ in millions) GAAP income before provision for income taxes GAAP provision for income taxes Effective Tax Rate

Q1'13 $ 353 134 38%

Q2'13 $ 545 212 39%

Q3'13 $ 726 301 41%

Q4'13 $ 1,130 607 54%

Q1'14 $ 1,075 433 40%

Q2'14 $ 1,386 595 43%

Q3'14 Q4'14 $ 1,336 $ 1,114 530 413 40% 37%

GAAP income before provision for income taxes Share-based compensation and related payroll tax expenses Amortization of intangibles Non-GAAP income before provision for income taxes Non-GAAP provision for income taxes Non-GAAP effective tax rate

$

$

$

$ 1,130 326 39 $ 1,495 681 46%

$ 1,075 299 41 $ 1,415 489 35%

$ 1,386 322 41 $ 1,749 627 36%

$ 1,336 $ 1,114 364 909 59 177 $ 1,759 $ 2,200 610 682 35% 31%

$

353 190 33 576 241 42%

$

22

545 232 36 813 294 36%

726 251 37 $ 1,014 348 34%

Reconciliations (continued) Free Cash Flow (in millions) Net cash provided by operating activities Purchases of property and equipment Property and equpiment acquired under capital leases Free Cash Flow

Q1'13 719 327 11 $ 381

$

Q2'13 $ 1,322 268 $ 1,054

23

Q3'13 950 284 $ 666

$

Q4'13 $ 1,231 483 $ 748

Q1'14 $ 1,285 363 $ 922

Q2'14 $ 1,341 469 $ 872

Q3'14 $ 1,248 482 $ 766

Q4'14 $ 1,583 517 $ 1,066

Limitations of Key Metrics and Other Data The numbers for our key metrics, which include our daily active users (DAUs), mobile DAUs, monthly active users (MAUs), mobile MAUs, and average revenue per user (ARPU), as well as certain other metrics such as mobile-only DAUs and mobile-only MAUs, are calculated using internal company data based on the activity of user accounts. While these numbers are based on what we believe to be reasonable estimates of our user base for the applicable period of measurement, there are inherent challenges in measuring usage of our products across large online and mobile populations around the world. For example, there may be individuals who maintain one or more Facebook accounts in violation of our terms of service. We estimate, for example, that "duplicate" accounts (an account that a user maintains in addition to his or her principal account) may have represented less than 5% of our worldwide MAUs in 2014. We also seek to identify "false" accounts, which we divide into two categories: (1) user-misclassified accounts, where users have created personal profiles for a business, organization, or non-human entity such as a pet (such entities are permitted on Facebook using a Page rather than a personal profile under our terms of service); and (2) undesirable accounts, which represent user profiles that we determine are intended to be used for purposes that violate our terms of service, such as spamming. In 2014, for example, we estimate user-misclassified and undesirable accounts may have represented less than 2% of our worldwide MAUs. We believe the percentage of accounts that are duplicate or false is meaningfully lower in developed markets such as the United States or United Kingdom and higher in developing markets such as India and Turkey. However, these estimates are based on an internal review of a limited sample of accounts and we apply significant judgment in making this determination, such as identifying names that appear to be fake or other behavior that appears inauthentic to the reviewers. As such, our estimation of duplicate or false accounts may not accurately represent the actual number of such accounts. We are continually seeking to improve our ability to identify duplicate or false accounts and estimate the total number of such accounts, and such estimates may change due to improvements or changes in our methodology.

24

24

Limitations of Key Metrics and Other Data (continued) Our data limitations may affect our understanding of certain details of our business. For example, while user-provided data indicates a decline in usage among younger users, this age data is unreliable because a disproportionate number of our younger users register with an inaccurate age. Accordingly, our understanding of usage by age group may not be complete.

Some of our metrics have also been affected by applications on certain mobile devices that automatically contact our servers for regular updates with no user action involved, and this activity can cause our system to count the user associated with such a device as an active user on the day such contact occurs. The impact of this automatic activity on our metrics varies by geography because mobile usage varies in different regions of the world. In addition, our data regarding the geographic location of our users is estimated based on a number of factors, such as the user's IP address and selfdisclosed location. These factors may not always accurately reflect the user's actual location. For example, a mobile-only user may appear to be accessing Facebook from the location of the proxy server that the user connects to rather than from the user's actual location. The methodologies used to measure user metrics may also be susceptible to algorithm or other technical errors. Our estimates for revenue by user location and revenue by user device are also affected by these factors. We regularly review our processes for calculating these metrics, and from time to time we may discover inaccuracies in our metrics or make adjustments to improve their accuracy, including adjustments that may result in the recalculation of our historical metrics. We believe that any such inaccuracies or adjustments are immaterial unless otherwise stated. In addition, our DAU and MAU estimates will differ from estimates published by third parties due to differences in methodology. For example, some third parties are not able to accurately measure mobile users or do not count mobile users for certain user groups or at all in their analyses. The numbers of DAUs, mobile DAUs, MAUs, mobile MAUs, mobile-only DAUs and mobile-only MAUs discussed in this presentation, as well as ARPU, do not include users of Instagram or WhatsApp unless they would otherwise qualify as such users, respectively, based on their other activities on Facebook.

25

25

Facebook Q4 2014 Results

investor.fb.com