Facebook 3Q numbers - huge revenue growth

Facebook. You may have heard of this business. You may use the products, Facebook being the core one, WhatsApp and Instagram following on their heels very closely. Heck, your Gran may use Facebook. Your teenage friends (more likely kids and grandkids) may not, they go to school with their friends all day and every day, why do they need it? For the record, the folks who spend and are served ads, possibly have larger buying power. Over one billion people exclusively use their mobile phones to interact with Facebook. i.e. no desktop, no laptop. That in itself is amazing. 1.055 billion mobile only monthly users.

Equally amazing is when I see an advert insert on Bloomberg over the future of the internet, I am once again reminded that many people do not have access to the greatest leveller, the internet. As of now, according to Internet Live stats, only 46.1 percent of the world uses the internet. i.e. More than half do not. That means that more than 4 billion souls on the planet (including babies) do not use the internet. Over the last ten years global internet penetration has gone from 17.6 percent in 2006 to the 46 percent now number. And we have added 800 million people in that time, we the collective are breeding like crazy.

In short, the internet age may be something that we have always subscribed to (us reading this letter), I recall using the thing that Al Gore invented over 20 years ago. I can't recall being amazed, it was just there. I recall flat pages with no images (they took too long to download), moving parts only came later. Nowadays, we are all about videos and heck, you can even livestream. Some dumb idiot live streamed his "capturing" of a police car. Yes, this is 2016 and we are still dumb. Norway at 98 percent internet penetration is not Eritrea at 1.1 percent. For the record, South Africa is in the middle, at 52 percent. So more than half the population have and use the internet, the others neither have the resources to use it (no smartphone) or are not quite sure how. Either way, there is lots of heavy lifting for humanity to still do on the internet front. China has the same internet penetration as us, yet has the great overall number of internet users, at 720 million. And no Facebook.

To Facebook results from last evening. Revenues for the quarter were 7.011 billion Dollars, mobile ads are 84 percent of total revenue. Remember when they couldn't monetise mobile? This time last year it was 4.5 billion, this time in 2014 it was 3.2 billion Dollars. It has more than doubled in two years. Margins have improved and stabilised, operating income (GAAP) topped 3 billion Dollars for the first time. 3.122 billion Dollars. I recall people saying this business was a passing , they now make serious money. GAAP net income was 2.379 billion, annualised this at the current growth rates, you get a business that makes over ten billion Dollars a year. Non-Gaap diluted earnings per share registered 109 US cents, a comfortable beat relative to expectations.

So why was the stock down so heavily after market? Well, some people worry that average revenues per user are not growing as much. And Ad loads (not so easy to understand) expected to have muted growth. That is simply the amount of ads that can get served to a single user (on your organic feed), i.e. the feeling that your user experience is not compromised with too many adverts. The more you "use" the products, the more adverts you are served. I think that the next growth areas will be emerging markets and the "other" platforms. The analyst community has pencilled in around 37-38 billion Dollars in revenue and 4 to 4.10 Dollars worth of earnings. That means that the stock trades forward on 28 times earnings. Growing revenues and profits like gangbusters, this is a definite buy at these levels. Ignore the headline writers, almost always. Except our one.