Salto Partners

by

Facebook Q3 2012 Earnings

Facebook’s earnings report was better than expected. The company had revenues of $1.262 billion in Q3 2012. That’s a 32.285% increase from the same period last year.  GAAP Net income was a loss of $59 million mainly due to share based compensation costs and related tax roll expenses. Otherwise the company posted solid operating margins. Wall Street expectations had been slightly lower.

During the earnings call Mark Zuckerberg highlighted some major breakthroughs. First, Facebook has more than a billion people using the site each month. Second, 600 million people are using mobile devices to share and connect. The last three months were crucial for Facebook in terms of its mobile strategy. Facebook made $153 million in sales from mobile advertisements, a revenue stream that didn’t exist seven months ago. Mobile revenue is 14% of advertising revenue in Q3.

 Zuckerberg made mobile a strong priority for the company. And it showed. Facebook completed the rebuild of its app for iOS. It improved of the platform for mobile developers by launching new software development kits for iOS and Android as well as a deeper integrating into iOS 6.0.

Facebook had a positive Q3 2012. But the exciting results of its mobile ad business are not the answer to all questions either. Facebook is still playing catch-up. eMarketer estimated the size of mobile at revenue at $2.61 billion this year.  $153 million mobile ad revenue is just a fraction to the total market opportunity. Investors will keep watching how aggressively Facebook is able to ramp up its mobile business.

You can read the full article here.

by

Facebook – Before the Earnings Call

This week I had a few conversations with Forbes on Facebook. It started out with the question: “Is the stock at $29 a clear buy?” The answer is like always highly dependend on the investment objectives and horizon of an investor. But here were some of my thoughts. Please also read the Forbes article on this topic .

Facebook’s IPO was a success – for Facebook. Not so much for the individual investor. The stock closed at a little over $38 dollars on its first day. Now, it’s trading in the $29 range trending lower. Has it dropped enough? Is it a good time to buy now? After all, this company has 900 million users worldwide. The upside seems enormous.

There are three major issues with the stock that investors have to take into account. While Facebook has a huge global audience its appeal to advertisers is limited so far. People use the site but are not clicking on the ads. Then, its mobile monetization is unclear. That’s a big gap because we increasingly access the web via mobile platforms. Last but not least there is the lock-up expiration issue. There a lot of folks on the sell side with strike prices well below the current $29 mark. If they decide to buy that house, that boat or that car right away instead of holding on to stock, then this could create additional price pressure.

Another question was, what to look for at the earnings call. Please read the article on Forbes. Here are my thoughts.

Numbers: Are they able to hit the analyst earnings expectations of  $0.12 per share and $1.15 B in revenue. In order to afford the multiples they are commanding right now, the company should achieve or exceed their numbers. Why is this important? It shows the ability to tactically execute. Hitting their numbers helps to build trust into deal making machinery that needs to take the business to unprecedented levels quarter after quarter.

Mobile Strategy: The world is going mobile. Traffic from mobile devices is growing at an astounding rate — by some estimates, mobile visits now account for fully 20 percent of Web traffic. Cisco estimates that global mobile data traffic will increase 18 times over between 2011 and 2016. Compared with all that growth, mobile ad spending is still small, and even though it’s projected to more than double in 2012 to $11.6 billion, according to Strategy Analytics, advertisers will still spend nearly four times as much on online advertising. Yet, someone will figure out how make money on mobile. The question is, is Facebook one of them? Looking at their next earning calls it would be refreshing to understand how they plan to become a major player in the mobile world. Besides selling mobile ads what other plausible monetization strategies do exist?

Making sense of the acquisition puzzle: Facebook has been very active during the past months acquiring different companies in different areas. Among those were Instagram, a photo sharing app, and Face.com, a face recognition company. What is the grand plan behind those transactions. Most importantly: how do they help to grow the top-line?