Facebook Earnings: Revenue Growth Rate Accelerates

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The social network's advertising revenue is soaring.
In a surprise twist, Facebook's (NASDAQ:FB) top-line growth rate accelerated in the company's second quarter. So much for management's guidance in its first-quarter earnings call for revenue growth rates to continue to decelerate sequentially throughout 2019. Adjusted earnings per share and free cash flow also rose nicely, highlighting the company's lucrative business model.
Here's a closer look at Facebook's strong top- and bottom-line growth, and the drivers for these metrics.

Facebook's second-quarter results: The raw numbers

MetricQ2 2019Q2 2018Change
Revenue
$16.7billion
$12.2billion
28%
Earnings per share
$0.90
$1.74
(48%)
Daily active users
1.50billion
1.50 billion
8%
Data source: Facebook second-quarter earnings release. Table by author.
Facebook's revenue rose 28% year over year -- an acceleration compared to 26% year-over-year growth in Q1. Earnings per share fell 48% year over year but took a hit from a $2 billion charge for a settlement with the U.S. Federal Trade Commission regarding the Cambridge Analytica user data scandal last year. Earnings per share were also impacted by a $1.1 billion one-time tax expense. Excluding these charges, Facebook's earnings per share for the period were $1.99, up 14% year over year.

Second-quarter highlights

  • Facebook's daily active users increased 8% year over year to 1.59 billion
  • Monthly active users rose 8% to 2.41 billion
  • Advertising revenue jumped 28% year over year to $16.6 billion, accounting for 98% of total revenue
  • Facebook's payments and other fees revenue was $262 million, up 36%
  • The social network's operating margin narrowed from 44% in the year-ago period to 27%, but it was 39% when excluding one-time expenses
  • Mobile advertising revenue accounted for 94% of revenue, up from 91% of revenue in the second quarter of 2018
  • Average revenue per user (ARPU) increased 18% year over year
  • ARPU was particularly strong in the U.S., growing 28%
  • Costs and expenses increased 39% year over year when excluding Facebook's $2 billion FTC charge
  • Free cash flow was $4.8 billion, up from $2.8 billion in the year-ago quarter

What management had to say

"We had a strong quarter and our business and community continue to grow," said Facebook CEO Mark Zuckerberg in the company's second-quarter earnings call. "We are investing in building stronger privacy protections for everyone and on delivering new experiences for the people who use our services."
Management also pointed out the company's impressive family metrics. About 2.1 billion unique users now user Facebook, Instagram, WhatsApp, or Messenger every day, and 2.7 billion people use at least one of these services every month. This is up from 2.5 billion monthly unique users across Facebook's services in its second quarter of 2018.

Looking ahead

During Facebook's earnings call, Zuckerberg reiterated the company's intention to build out a privacy-focused social platform that integrates its different social networks with a focus on messaging and stories. The platform will be built out over the next five years, Zuckerberg said.
Despite the quarter's acceleration in revenue growth, Facebook maintained its outlook for decelerating top-line growth rates throughout the remainder of the year.

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