April 22, 2015: I just listened to Facebook's Q1 2015 Earnings Report call. Mark Zuckerberg and Sheryl Sandberg were very upbeat about their report, the current position of the company and the future. On more than one occasion each of them reminded us of Facebook's mission to connect the world. Facebook's Investor Relations page tells us,
Facebook's mission is to give people the power to share and make the world more open and connected. People use Facebook to stay connected with friends and family, to discover what's going on in the world, and to share and express what matters to them.
Apparently people are taking advantage of their power to share as Facebook reported user growth is up to 1.44B. Facebook reported 1.44 billion Monthly Active Users, 936 million Daily Active Users and 1.25 billion Mobile Monthly Active Users along with 798 Mobile Daily Active Users.
The rest of the earnings call, though upbeat in tone, was not a upbeat as Facebook failed to beat earnings estimates in Q1 2015 following 10 straight quarters of beating them. Wall Street was looking for earnings per share (EPS) of $0.40 or earnings that were about 67% higher than the EPS of $0.24 reported in the same quarter last year. The actual EPS reported by Facebook today was $0.42 but reported revenue was $3.54 billion which fell short of the $3.56 billion estimate and the $3.85 billion of reported revenue last quarter (Q4 2014). Ad revenue was at $3.32 billion and mobile accounts for 73% of that revenue, up from 69% last quarter. Keep in mind too that Facebook's reported revenue was up 42% versus Q1 2014. That's a huge amount.
Reported earnings as well as forecasts of future earnings play an important role with investors who are trying to determine the appropriate valuation of a company. The basic measurement of earnings is earnings per share. This metric is calculated as the company's net earnings - or net income found on its income statement - less dividends on preferred stock, divided by the number of outstanding shares. For example, if a company (with no preferred stock) produces a net income of $12 million in the third quarter and has eight million shares outstanding, its EPS would be $1.50 ($12 million /8 million).
Ken Odeluga, Market Analyst with City Index had this to say about today's earnings report, "The CEO and management team have made little secret of the fact that they want to be a mobile-first business Zuckerberg has set an unofficial target for these mobile apps to hit 1 billion users, at which point the company trains its advertising and monetization efforts on them. Facebook's focus on mobile comes through even in its financial filings, which now offer many comparable data points about its mobile device business. They've realized everything on the Internet will be mobile, essentially. The company has also begun offering more data to advertisers, both to help them understand what users are saying about companies and products and to help them test how effectively their ads encourage customers to buy things from stores."
Generally speaking, the investment community relies on earnings as its key metric. We judge stocks by their ability to increase earnings quarter over quarter. That said, today's report appears to indicate Facebook is meeting some of the analyst's expectations which bodes well for the company's valuation and the price of its stock. Facebook stock closed at $84.63 today, up $1.01 or 1.21%. but since the announcement was made after the market closed, we'll have to see what happens to the stock price tomorrow and in the coming days and weeks. Early reports indicate Facebook's stock has dipped as much as 2% in after-hours trading.