Facebook Q4 2012 Investor Slide Deck

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Quarterly Earnings Slides Quarterly Earnings Slides Quarterly Earnings Slides Quarterly Earnings Slides Q4 2012

description

Facebook's Q4 2012 financials.

Transcript of Facebook Q4 2012 Investor Slide Deck

Page 1: Facebook Q4 2012 Investor Slide Deck

Quarterly Earnings SlidesQuarterly Earnings SlidesQuarterly Earnings SlidesQuarterly Earnings SlidesQ4 2012

Page 2: Facebook Q4 2012 Investor Slide Deck

Safe Harbor

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. Please also see the appendix to this

presentation for information concerning limitations of our key user metrics.

Page 3: Facebook Q4 2012 Investor Slide Deck

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Monthly Active Users (MAUs)

Please see Facebook's Form 10-K for the year ended December 31, 2012 for definitions of user activity used to determine the number of our MAUs, DAUs and mobile MAUs. The number of MAUs, DAUs, and mobile MAUs do not include Instagram users unless such users would otherwise qualify as MAUs, DAUs, and mobile MAUs based on activity that is shared back to Facebook.

In June 2012, we discovered an error in the algorithm we used to estimate the geographic location of our users that affected our attribution of certain user locations for the first quarter of 2012. The first quarter of 2012 user metrics reflect a reclassification to more correctly attribute users by geographic region.

154 163 169 176 179 183 186 189 193

183 201 212 221 229 239 246 253 261

138156

174196 212

234 255 277 298133

161183

207225

245268

288304

608

680739

800845

901955

1,0071,056

Q4'10 Q1'11 Q2'11 Q3'11 Q4'11 Q1'12 Q2'12 Q3'12 Q4'12

Millions of MAUsRest of World

Asia

Europe

US & Canada

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Daily Active Users (DAUs)

99 105 117 124 126 129 130 132 135

107 120 127 135 143 152 154 160 16964

7285

98 105119 129 141

153

5874

87100

109126

139152

161

327

372

417457

483

526552

584618

Q4'10 Q1'11 Q2'11 Q3'11 Q4'11 Q1'12 Q2'12 Q3'12 Q4'12DAUs / MAUs

Q4'10 Q1'11 Q2'11 Q3'11 Q4'11 Q1'12 Q2'12 Q3'12 Q4'12

54% 55% 56% 57% 57% 58% 58% 58% 59%

Millions of DAUsRest of World

Asia

Europe

US & Canada

Please see Facebook's Form 10-K for the year ended December 31, 2012 for definitions of user activity used to determine the number of our MAUs, DAUs and mobile MAUs. The number of MAUs, DAUs, and mobile MAUs do not include Instagram users unless such users would otherwise qualify as MAUs, DAUs, and mobile MAUs based on activity that is shared back to Facebook.

For non-worldwide DAU user numbers presented for the periods marked March 31, 2012 and June 30, 2012, the figures represent an average of the first 25 days of the period and the last 27 days of the period, respectively, due to the algorithm error described in the MAU note on slide 3. These average numbers do not meaningfully differ from the average numbers when calculated over a full month.

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Mobile Monthly Active Users (Mobile MAUs)

Millions of Mobile MAUs

Please see Facebook's Form 10-K for the year ended December 31, 2012 for definitions of user activity used to determine the number of our MAUs, DAUs and mobile MAUs. The number of MAUs, DAUs, and mobile MAUs do not include Instagram users unless such users would otherwise qualify as MAUs, DAUs, and mobile MAUs based on activity that is shared back to Facebook.

245 288

325 376

432

488

543

604

680

Q4'10 Q1'11 Q2'11 Q3'11 Q4'11 Q1'12 Q2'12 Q3'12 Q4'12

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Mobile Only Monthly Active Users (Mobile Only MAUs)

Millions of Mobile Only MAUs

Mobile Only MAUs are mobile MAUs that accessed Facebook solely through mobile apps or our mobile website.

58

83

102

126

157

Q4'11 Q1'12 Q2'12 Q3'12 Q4'12

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Payments and other fees

Advertising

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Revenue

Millions of Dollars

$655 $637$776 $798

$943$872

$992$1,086

$1,329$76 $94

$119$156

$188$186

$192

$176

$256

$731 $731

$895$954

$1,131$1,058

$1,184$1,262

$1,585

Q4'10 Q1'11 Q2'11 Q3'11 Q4'11 Q1'12 Q2'12 Q3'12 Q4'12

$1,868

$3,154

$4,279$106

$557

$810

$1,974

$3,711

$5,089

2010 2011 2012

Quarterly Annual

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Rest of World

Asia

Europe

US & Canada

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Revenue by User Geography

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 advertiser or developer.

Millions of Dollars

$412 $394$471 $482

$567 $525 $590 $637$780

$218 $229

$275 $290

$361$328

$346$341

$440

$58 $62

$82$104

$115$118

$135$154

$198

$43 $47

$65$78

$87$87

$113$130

$167

$731 $731

$895$954

$1,131$1,058

$1,184$1,262

$1,585

Q4'10 Q1'11 Q2'11 Q3'11 Q4'11 Q1'12 Q2'12 Q3'12 Q4'12

Quarterly

$1,146

$1,914

$2,532$577

$1,155

$1,455

$148

$363

$605

$101

$277

$497

$1,974

$3,711

$5,089

2010 2011 2012

Annual

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Rest of World

Asia

Europe

US & Canada

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Advertising Revenue by User Geography

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 advertiser or developer.

$359 $332$394 $395

$462 $419$479

$538$631

$201 $206

$245 $245

$306$274

$294$295

$374

$53 $56

$74 $88

$95

$99

$115$133

$168

$41 $44

$61 $71

$79$79

$104

$120

$156

$655$637

$776 $798

$943$872

$992

$1,086

$1,329

Q4'10 Q1'11 Q2'11 Q3'11 Q4'11 Q1'12 Q2'12 Q3'12 Q4'12

Millions of Dollars

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Rest of World

Asia

Europe

US & Canada

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Payments & Other Revenue by User Geography

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 advertiser or developer.

Millions of Dollars

$53 $62$77 $87

$105 $106 $111$99

$149$17

$23

$30

$45

$55 $54 $52

$46

$66

$5

$6

$8

$16

$20 $19 $20

$21

$30

$2

$3

$4

$7

$8 $8 $9

$10

$11

$76$94

$119

$156

$188 $186 $192

$176

$256

Q4'10 Q1'11 Q2'11 Q3'11 Q4'11 Q1'12 Q2'12 Q3'12 Q4'12

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Payments Revenue Recognition Timing

� As of Q4 2012, we had 24 months of historical transactional information. As a result, starting in Q4 2012 we recorded all Payments revenues in the month the transaction occurs, net of estimated refunds or chargebacks.

� Payments terms and conditions provide for a 30-day claim period following a Payments transaction during which the customer may dispute the transaction.

� In Q3 2012 and prior, due to insufficient transaction history, Payments revenues were recognized after the claim period lapsed. � For example, transactions occurring in June

were recognized as revenue 30 days later, in July, and included in Q3 2012 revenue. Therefore, Q3 2012 revenue reflects transactions that occurred during the months of June, July and August.

Q 3 2012 Q 4 2012 Q1 2013

June Jul Aug Sept Oct Nov Jan MarFebDec

This change resulted in a one-time increase in Payments revenue in the fourth quarter as we recognized revenue from an extra month of payments transactions (those occurring in September through December.)

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Average Revenue per User (ARPU)

$1.60

$1.40 $1.43 $1.37

$1.71

Q4'11 Q1'12 Q2'12 Q3'12 Q4'12

Europe

$3.20

$2.90

$3.20$3.40 $4.08

Q4'11 Q1'12 Q2'12 Q3'12 Q4'12

US & Canada

$0.56 $0.53 $0.55 $0.58$0.69

Q4'11 Q1'12 Q2'12 Q3'12 Q4'12

Asia

Revenue by user geography is geographically apportioned based on our estimation of the geographic location of our users when they performa 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 advertiser or developer. The ARPU amount for US & Canada region in Q1 2012 reflects an adjustment based on the reclassification of certain users between geographical regions to more correctly attribute users by geographic region. Please see Facebook's Form 10-K for the year ended December 31, 2012 for definitions of ARPU and annual ARPU.

$1.38

$1.21

$1.28$1.29

$1.54

Q4'11 Q1'12 Q2'12 Q3'12 Q4'12

Worldwide

$0.41

$0.37

$0.44 $0.47 $0.56

Q4'11 Q1'12 Q2'12 Q3'12 Q4'12

2010 2011 2012 2010 2011 2012

2010 2011 2012 2010 2011 2012 2010 2011 2012

$3.97

$5.02$5.32

$11.33

$8.34

$13.58

$3.75

$5.46$5.91

$1.49

$2.05

$2.35

$0.94

$1.50

$1.84

Rest of World

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Share-Based Compensation Expense

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$58 $59 $74 $97 $113 $138 $137

$986

$28 $24

$6 $7

$64 $70 $76 $103

$1,106

$179 $184

Q4'10 Q1'11 Q2'11 Q3'11 Q4'11 Q1'12 Q2'12 Q3'12 Q4'12

Millions of DollarsPre-2011 RSUs

Post-2011 RSUs

Options & Other

Q4 2012 expenses are estimates and exclude any potential impact of future acquisitions.

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Expenses as a % of Revenue

9% 12% 11% 12% 10%

11%14%

33%

13% 12%

Q4'11 Q1'12 Q2'12 Q3'12 Q4'12

Marketing & Sales

22%26% 25% 25% 25%

22%

26%

31%

26% 26%

Q4'11 Q1'12 Q2'12 Q3'12 Q4'12

Cost of Revenue

7% 9% 9% 11% 10%

11% 14%

60%

19% 19%

Q4'11 Q1'12 Q2'12 Q3'12 Q4'12

Research & Development

7% 8% 11% 10% 9%

8% 10%

39%

12% 11%

Q4'11 Q1'12 Q2'12 Q3'12 Q4'12

General & Administrative

We have reclassified certain prior period amounts in marketing and sales to general and administrative expense to conform to our current period presentation. These reclassifications did not affect revenue, total costs and expenses, income (loss) from operations, or net (loss) income.

Share-based compensation + Payroll tax related to share-based compensation All other expenses

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GAAP Income (Loss) from Operations & Margin

$437 $388 $407 $414 $548

$381

($743)

$377 $523

Q4'10 Q1'11 Q2'11 Q3'11 Q4'11 Q1'12 Q2'12 Q3'12 Q4'12

Income (Loss) from Operations ($M)

60% 53% 45% 43% 48% 36%

(63%)

30% 33%

Q4'10 Q1'11 Q2'11 Q3'11 Q4'11 Q1'12 Q2'12 Q3'12 Q4'12

Operating Margin

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Effective Tax Rate

(in millions) Q1 Q2 Q3 Q4

2012 2012 2012 2012 2011 2012

Revenue 1,058$ 1,184$ 1,262$ 1,585$ 3,711$ 5,089$

Costs and expenses:

Cost of revenue 277 367 322 398 860 1,364

Research and development 153 705 244 297 388 1,399

Marketing and sales 143 392 168 193 393 896

General and administrative 104 463 151 174 314 892

Total costs and expenses 677 1,927 885 1,062 1,955 4,551

Income from operations 381 (743) 377 523 1,756 538

Interest and other income (expense), net

Interest expense (13) (10) (11) (16) (42) (51)

Other income (expense), net 14 (12) 6 (2) (19) 7

Income (loss) before provision for income taxes 382 (765) 372 505 1,695 494

Provision for (benefit from) income taxes 177 (608) 431 441 695 441

Net income (loss) 205$ (157)$ (59)$ 64$ 1,000$ 53$

Effective Tax Rate 46% 79% 116% 87% 41% 89%

Q2 through Q4 effective tax rates were influenced by significant share-based compensation expense resulting from our initial public offering, a portion of which is not tax-deductible

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GAAP Net Income (Loss)

$251 $233 $240 $227

$302

$205

($157)

($59)

$64

Q4'10 Q1'11 Q2'11 Q3'11 Q4'11 Q1'12 Q2'12 Q3'12 Q4'12

Millions of Dollars

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Non-GAAP Net Income

Millions of Dollars

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

Quarterly Annual

$360 $426

$1,164

$1,317

Q4 2011 Q4 2012 2011 2012

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Capital Investments

Millions of DollarsProperty and equipment acquired

under capital leases

Purchases of property

and equipment

Annual

$33

$293

$606

$1,235

$56

$217

$473

$340

$89

$510

$1,079

$1,575

2009 2010 2011 2012

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Period-end Headcount

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Employees

Annual

1,218

2,127

3,200

4,619

2009 2010 2011 2012

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AppendixAppendixAppendixAppendix

Page 22: Facebook Q4 2012 Investor Slide Deck

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Reconciliations

2011 2012 2011 2012

GAAP net income 302$ 64$ 1,000$ 53$

Share-based compensation expense 76 184 217 1,572

Payroll tax expenses related to share-based compensation - 29 7 151

Income tax adjustments (18) 149 (60) (459)

Non-GAAP net income 360$ 426$ 1,164$ 1,317$

December 31, December 31,

Three Months Ended Year Ended

Page 23: Facebook Q4 2012 Investor Slide Deck

Limitations of Key MetricsThe numbers of our monthly active users (MAUs) and daily active users (DAUs) and average revenue per user

(ARPU) 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, despite our efforts to detect and suppress such behavior. We

estimate, for example, that “duplicate” accounts (an account that a user maintains in addition to his or her

principal account) may have represented approximately 5.0% of our worldwide MAUs as of December 31, 2012. 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. As of December 31, 2012, for example, we estimate user-

misclassified accounts may have represented approximately 1.3% of our worldwide MAUs and undesirable

accounts may have represented approximately 0.9% 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

Australia and higher in developing markets such as Indonesia 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 be affected by improvements

or changes in our methodology.

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Limitations of Key Metrics (continued)Some of our historical metrics through the second quarter of 2012 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. For example, we estimate that less than 5% of our estimated worldwide DAUs as of

December 31, 2011 and 2010 resulted from this type of automatic mobile activity, and that this type of activity had

a substantially smaller effect on our estimate of worldwide MAUs and mobile MAUs. 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 self-disclosed 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. For example, in early June

2012, we discovered an error in the algorithm we used to estimate the geographic location of our users that

affected our attribution of certain user locations for the period ended March 31, 2012. While this issue did not

affect our overall worldwide MAU number, it did affect our attribution of users to different geographic regions.

We estimate that the number of MAUs as of March 31, 2012 for the United States & Canada region was overstated

as a result of the error by approximately 3% and these overstatements were offset by understatements in other

regions. In addition, our estimates for revenue by user location are also affected by these factors. We regularly

review and may adjust our processes for calculating these metrics to improve their accuracy. In addition, our

MAU and DAU 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 number of MAUs, DAUs, mobile MAUs, and ARPU discussed in these slides do not include users of Instagram

unless such users would otherwise quality as MAUs, DAUs, and mobile MAUs, respectively, based on activity that

is shared back to Facebook.

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Page 25: Facebook Q4 2012 Investor Slide Deck