Facebook 1Q 2015

Facebook reported numbers post the market last evening. Facebook, contrary to the chattering classes and naysayers, has turned out to be a solid business run by a fellow that has some serious skills. I think that Mark Zuckerberg is in a league with the business greats, obviously there is a lot of work to do. I get that he wants everyone to have access to the internet, I sometimes think that if I could give the Nobel peace prize to a thing, it would be the internet. Who would get the money, Al Gore? Ha ha, kidding, perhaps it can be donated to Wikipedia. Did you know that Zuckerberg's middle name is Elliot?

The company of course incorporates more than just the original desktop blue, 1.44 billion monthly users across mobile and desktop now use the network/service, 1.25 billion on their mobile phones. On mobile that represents a monster jump of 240 million. Daily that number is 936 million (not quite at 1 billion yet), 798 million on mobile phones. That is just the main service, the other businesses which we chatted about a few days ago, have massive numbers too. WhatsApp has 800 million proper and engaged users, 600 million people use Messenger, 700 million people use groups (the only one I don't use), 300 million active members use Instagram. Across all the networks, 45 billion messages are sent a day. That is around 6 per person on the planet per day.

Of all the services, I think that Instagram is the most beautiful, pictures are gorgeous and I would urge you, if you have a smartphone and like seeing and taking pictures for Facebook, to use that platform. Video of course is growing like gangbusters, there are 4 billion views a day. You can of course also post 15 second clips of video on Instagram, which is about the normal persons attention span. I am sure that it is more than that. Average time spent on Instagram is 21 minutes a day. I have never heard of the movie "Age of Adaline" which premiers this Friday, I may watch it on BoxOffice, or some other platform. Lionsgate has, via Instagram been targeting younger woman in the lead up to this movie, said Sheryl Sandberg on the conference call. The company has retargeted their efforts to Facebook, she said and they are expected to bear fruits, come the movie release this weekend.

You can have all the users that you want in the world, the fact of the matter is that the service is for free. You pay for the inter webs with your service provider, so I guess strictly speaking it is not for free. For advertisers however, it is the most pointed platform in the world. You can set your parameters as close as you need. I have used it, with mixed success I must say. Having said that, there are a mere 2 million advertisers on Facebook. That is all. They are responsible for quarterly revenue of 3.32 billion of the groups 3.543 billion in the last quarter. Revenue on a comparable quarter last year grew by 42 percent. If you excluded the strong Dollar, revenues would have increased by 49 percent. Around half of revenues are in the the US and Canada, one quarter in Europe, one sixth in Asia Pacific and the balance the Rest of the world. People like you and I. Mobile ad revenue is now 73 percent of total advertising revenue, if you recall there was a lot of anxiety around how the company would monetize mobile. Well, that is how.

ARPU's are still low however. Across the group, global ARPU's are 2.5 Dollars. That is the measure of revenue generated by the company per user. What the company are doing however is that they are spending a lot more on marketing than ever before, as a percentage of revenue, 17 percent this last quarter when compared to even the biggest revenue quarter (traditional the holidays quarter, Q4) where the company spent 16 percent. Research and Development expenses as a percentage of revenue topped 30 percent in the last quarter, we knew that the company was going to invest heavily, we were told that in the last quarter. Non GAAP operational income grew 28 percent when compared against Q1 2014, non GAAP diluted EPS clocked 42 cents for the last quarter.

The stronger Dollar and the increased spend (up heavily) means that earnings are going to be slim pickings for a while, I suspect that whilst revenues grow like crazy, expectations are for this year is 17 billion Dollars, over 23 next year and nearly 29 the year thereafter. EPS is however only expected to be around 1 Dollar this year, there is no prospect of a dividend as of yet. With a share price of 85 Dollars it is easy enough to figure that one out from a simple fundamentals point of view. This investment is not for everyone, the company has not put a foot wrong so far. They have a strong team, there is plenty of growth ahead.

Indeed last evening another new initiative was released: Introducing Hello. It is pretty darn cool, you can see more info. How does it work? Like this: You can also search for people and businesses on Facebook and call them with just one tap. So if a friend tells you about a new restaurant in your neighbourhood, you can use Hello to find their hours, make a reservation and get directions, all without leaving the app. Many different applications and bolt ons are coming, you must own a percentage of this company in your portfolio. We maintain our buy rating on Facebook, you are going to have to continue to be patient in order to see the big unwind from a valuations point of view, as in the case of growing businesses like Amazon, you can wait a decade.