Facebook Reports Fourth Quarter and Full Year 2017 Results

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Facebook

Jan 31, 2018, 04:05 ET

MENLO PARK, Calif., Jan. 31, 2018 /PRNewswire/ -- Facebook, Inc. (NASDAQ: FB) today reported financial results for the quarter and full year ended December 31, 2017.

"2017 was a strong year for Facebook, but it was also a hard one," said Mark Zuckerberg, Facebook founder and CEO. "In 2018, we're focused on making sure Facebook isn't just fun to use, but also good for people's well-being and for society. We're doing this by encouraging meaningful connections between people rather than passive consumption of content. Already last quarter, we made changes to show fewer viral videos to make sure people's time is well spent. In total, we made changes that reduced time spent on Facebook by roughly 50 million hours every day. By focusing on meaningful connections, our community and business will be stronger over the long term."

Fourth Quarter and Full Year 2017 Financial Highlights

Three Months Ended
December 31, 

Year-
over-Year

Year Ended
December 31,

Year-
over-Year

2017

2016

 %
Change

2017

2016

%
Change

In millions, except percentages and per share amounts










Revenue:










   Advertising

$

12,779

$

8,629

48

%

$

39,942

$

26,885

49

%

   Payments and other fees

193

180

7

%

711

753

(6)

%

Total revenue

12,972

8,809

47

%

40,653

27,638

47

%

Total costs and expenses

5,620

4,243

32

%

20,450

15,211

34

%

Income from operations

$

7,352

$

4,566

61

%

$

20,203

$

12,427

63

%

Operating margin

57

%

52

%


50

%

45

%

Provision for income taxes(1)

$

3,194





$

4,660




Effective tax rate(1)

43

%




23

%



Net income(1)

$

4,268

$

3,568

20

%

$

15,934

$

10,217

56

%

Diluted Earnings per Share (EPS)(1)

$

1.44

$

1.21

19

%

$

5.39

$

3.49

54

%


(1)

In December 2017, the 2017 Tax Cuts and Jobs Act was enacted and significantly impacted U.S. tax law. As a result of this legislation, our fourth quarter and full year 2017 provision for income taxes increased by $2.27 billion, which impacted our effective tax rate, net income and diluted EPS for such periods. Our diluted EPS decreased by $0.77 for both the fourth quarter and full year 2017. See "2017 Tax Cuts and Jobs Act" below for additional information.

Fourth Quarter and Full Year 2017 Operational and Other Financial Highlights

  • Daily active users (DAUs) – DAUs were 1.40 billion on average for December 2017, an increase of 14% year-over-year.
  • Monthly active users (MAUs) – MAUs were 2.13 billion as of December 31, 2017, an increase of 14% year-over-year.
  • Mobile advertising revenue – Mobile advertising revenue represented approximately 89% of advertising revenue for the fourth quarter of 2017, up from approximately 84% of advertising revenue in the fourth quarter of 2016.
  • Capital expenditures – Capital expenditures were $2.26 billion and $6.73 billion for the fourth quarter and full year 2017, respectively.
  • Cash and cash equivalents and marketable securities – Cash and cash equivalents and marketable securities were $41.71 billion at the end of the fourth quarter of 2017.
  • Headcount – Headcount was 25,105 as of December 31, 2017, an increase of 47% year-over-year.

2017 Tax Cuts and Jobs Act

On December 22, 2017, the 2017 Tax Cuts and Jobs Act (the Tax Act) was enacted into law and the new legislation contains several key tax provisions that affected us, including a one-time mandatory transition tax on accumulated foreign earnings and a reduction of the corporate income tax rate to 21% effective January 1, 2018, among others. We are required to recognize the effect of the tax law changes in the period of enactment, such as determining the transition tax, remeasuring our U.S. deferred tax assets and liabilities, and reassessing the net realizability of our deferred tax assets and liabilities. In December 2017, the Securities and Exchange Commission (SEC) staff issued Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (SAB 118), which allows us to record provisional amounts during a measurement period not to extend beyond one year of the enactment date. As a result, our provision for income taxes increased by $2.27 billion and our diluted EPS decreased by $0.77 for both the fourth quarter and full year 2017. Since the Tax Act was passed late in the fourth quarter of 2017, and ongoing guidance and accounting interpretation are expected over the next 12 months, we consider the accounting of the transition tax, deferred tax re-measurements, and other items to be provisional due to the forthcoming guidance and our ongoing analysis of final year-end data and tax positions. We expect to complete our analysis within the measurement period in accordance with SAB 118.

Webcast and Conference Call Information

Facebook will host a conference call to discuss the results at 2 p.m. PT / 5 p.m. ET today. The live webcast of Facebook's earnings conference call can be accessed at investor.fb.com, along with the earnings press release, financial tables, and slide presentation. Facebook uses the investor.fb.com and newsroom.fb.com websites as well as Mark Zuckerberg's Facebook Page (https://www.facebook.com/zuck) as means of disclosing material non-public information and for complying with its disclosure obligations under Regulation FD.

Following the call, a replay will be available at the same website. A telephonic replay will be available for one week following the conference call at +1 (404) 537-3406 or +1 (855) 859-2056, conference ID 1279727.

About Facebook

Founded in 2004, Facebook's mission is to give people the power to build community and bring the world closer together. 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.

Contacts

Investors:
Deborah Crawford
[email protected] / investor.fb.com

Press:
Vanessa Chan
[email protected] / newsroom.fb.com

Forward Looking Statements

This press release contains forward-looking statements regarding our future business expectations, which are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are only predictions and may differ materially from actual results due to a variety of factors including: our ability to retain or increase users and engagement levels; our reliance on advertising revenue; our dependency on mobile operating systems, networks, and standards that we do not control; risks associated with new product development and their introduction as well as other new business initiatives; our emphasis on user growth and engagement and the user experience over short-term financial results; competition; litigation; privacy and regulatory concerns; risks associated with acquisitions; security breaches; and our ability to manage growth and geographically-dispersed operations. These and other potential risks and uncertainties that could cause actual results to differ from the results predicted are more fully detailed under the caption "Risk Factors" in our Quarterly Report on Form 10-Q filed with the SEC on November 2, 2017, which is available on our Investor Relations website at investor.fb.com and on the SEC website at www.sec.gov. Additional information will also be set forth in our Annual Report on Form 10-K for the year ended December 31, 2017. In addition, please note that the date of this press release is January 31, 2018, and any forward-looking statements contained herein are based on assumptions that we believe to be reasonable as of this date. We undertake no obligation to update these statements as a result of new information or future events.

Non-GAAP Financial Measures

To supplement our condensed consolidated financial statements, which are prepared and presented in accordance with generally accepted accounting principles in the United States (GAAP), we use the following non-GAAP financial measures: revenue excluding foreign exchange effect, advertising revenue excluding foreign exchange effect and free cash flow. The presentation of these financial measures is not intended to be considered in isolation or as a substitute for, or superior to, financial information prepared and presented in accordance with GAAP. Investors are cautioned that there are material limitations associated with the use of non-GAAP financial measures as an analytical tool. In addition, these measures may be different from non-GAAP financial measures used by other companies, limiting their usefulness for comparison purposes. We compensate for these limitations by providing specific information regarding the GAAP amounts excluded from these non-GAAP financial measures.

We believe these non-GAAP financial measures provide investors with useful supplemental information about the financial performance of our business, enable comparison of financial results between periods where certain items may vary independent of business performance, and allow for greater transparency with respect to key metrics used by management in operating our business.

We exclude the following items from our non-GAAP financial measures:

Foreign exchange effect on revenue. We translated revenue for the three months and year ended December 31, 2017 using the prior year's monthly exchange rates for our settlement currencies other than the U.S. dollar, which we believe is a useful metric that facilitates comparison to our historical performance.

Purchases of property and equipment. We subtract purchases of property and equipment in our calculation of free cash flow because we believe that this methodology can provide useful supplemental information to help investors better understand underlying trends in our business. Free cash flow is not intended to represent our residual cash flow available for discretionary expenditures.

For more information on our non-GAAP financial measures and a reconciliation of GAAP to non-GAAP measures, please see the "Reconciliation of GAAP to Non-GAAP Results" table in this press release.

FACEBOOK, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In millions, except for per share amounts)

(Unaudited)

Three Months Ended
December 31,

Year Ended
December 31,

2017

2016

2017

2016

Revenue

$

12,972

$

8,809

$

40,653

$

27,638

Costs and expenses:






Cost of revenue

1,611

1,047

5,454

3,789

Research and development

1,949

1,563

7,754

5,919

Marketing and sales

1,374

1,118

4,725

3,772

General and administrative

686

515

2,517

1,731

  Total costs and expenses

5,620

4,243

20,450

15,211

Income from operations

7,352

4,566

20,203

12,427

Interest and other income (expense), net

110

(33)

391

91

Income before provision for income taxes

7,462

4,533

20,594

12,518

Provision for income taxes

3,194

965

4,660

2,301

Net income

$

4,268

$

3,568

$

15,934

$

10,217

Less: Net income attributable to participating securities

2

7

14

29

Net income attributable to Class A and Class B common stockholders

$

4,266

$

3,561

$

15,920

$

10,188

Earnings per share attributable to Class A and Class B common








stockholders:






Basic

$

1.47

$

1.24

$

5.49

$

3.56

Diluted

$

1.44

$

1.21

$

5.39

$

3.49

Weighted average shares used to compute earnings per share attributable  






to Class A and Class B common stockholders:






Basic

2,907

2,882

2,901

2,863

Diluted

2,954

2,938

2,956

2,925

Share-based compensation expense included in costs and expenses:






Cost of revenue

$

50

$

32

$

178

$

113

Research and development

587

641

2,820

2,494

Marketing and sales

106

96

436

368

General and administrative

71

62

289

243

  Total share-based compensation expense

$

814

$

831

$

3,723

$

3,218

FACEBOOK, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions)

(Unaudited)



December 31, 2017

December 31, 2016

Assets


Current assets:



Cash and cash equivalents

$

8,079

$

8,903

Marketable securities

33,632

20,546

Accounts receivable, net of allowances of $189 and $94 as of December 31,







2017 and 2016, respectively

5,832

3,993

Prepaid expenses and other current assets

1,020

959

    Total current assets

48,563

34,401

Property and equipment, net

13,721

8,591

Intangible assets, net

1,884

2,535

Goodwill

18,221

18,122

Other assets

2,135

1,312

Total assets

$

84,524

$

64,961






Liabilities and stockholders' equity


Current liabilities:



Accounts payable

$

380

$

302

Partners payable

390

280

Accrued expenses and other current liabilities

2,892

2,203

Deferred revenue and deposits

98

90

    Total current liabilities

3,760

2,875

Other liabilities

6,417

2,892

    Total liabilities

10,177

5,767

Commitments and contingencies


Stockholders' equity:



Common stock and additional paid-in capital

40,584

38,227

Accumulated other comprehensive loss

(227)

(703)

Retained earnings

33,990

21,670

    Total stockholders' equity

74,347

59,194

Total liabilities and stockholders' equity

$

84,524

$

64,961

FACEBOOK, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)

Three Months Ended
December 31,

Year Ended
December 31,

2017

2016

2017

2016

Cash flows from operating activities






Net income

$

4,268

$

3,568

$

15,934

$

10,217

Adjustments to reconcile net income to net cash provided by operating








activities:






Depreciation and amortization

853

614

3,025

2,342

Share-based compensation

814

831

3,723

3,218

Deferred income taxes

(225)

(256)

(377)

(457)

Other

5

7

24

30

Changes in assets and liabilities:






Accounts receivable

(1,374)

(1,011)

(1,609)

(1,489)

Prepaid expenses and other current assets

441

155

(192)

(159)

Other assets

26

(32)

154

14

Accounts payable

50

35

43

14

Partners payable

73

47

95

67

Accrued expenses and other current liabilities

215

372

309

1,014

Deferred revenue and deposits

(7)

14

4

35

Other liabilities

2,531

586

3,083

1,262

Net cash provided by operating activities

7,670

4,930

24,216

16,108

Cash flows from investing activities






Purchases of property and equipment

(2,262)

(1,269)

(6,733)

(4,491)

Purchases of marketable securities

(5,272)

(4,974)

(25,682)

(22,341)

Sales of marketable securities

1,795

4,103

9,444

13,894

Maturities of marketable securities

760

227

2,988

1,261

Acquisitions of businesses, net of cash acquired, and purchases of












intangible assets

(17)

(41)

(122)

(123)

Change in restricted cash and deposits

3

(21)

67

61

Net cash used in investing activities

(4,993)

(1,975)

(20,038)

(11,739)

Cash flows from financing activities






Taxes paid related to net share settlement of equity awards

(885)

—

(3,246)

(6)

Principal payments on capital lease and other financing obligations

—

—

—

(312)

Repurchases of Class A common stock

(958)

—

(1,976)

—

Other financing activities, net

1

4

(13)

8

Net cash (used in) provided by financing activities

(1,842)

4

(5,235)

(310)

Effect of exchange rate changes on cash and cash equivalents

43

(94)

233

(63)

Net increase (decrease) in cash and cash equivalents

878

2,865

(824)

3,996

Cash and cash equivalents at beginning of period

7,201

6,038

8,903

4,907

Cash and cash equivalents at end of period

$

8,079

$

8,903

$

8,079

$

8,903

FACEBOOK, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)

Three Months Ended
December 31,

Year Ended
December 31,

2017

2016

2017

2016

Supplemental cash flow data






Cash paid during the period for:






Interest

$

—

$

—

$

—

$

11

Income taxes, net

$

324

$

446

$

2,117

$

1,210

Non-cash investing and financing activities:






Net change in accounts payable, accrued expenses and other current
















liabilities, and other liabilities related to property and equipment
















additions

$

(77)

$

(47)

$

363

$

272

Settlement of acquisition-related contingent consideration liability

$

—

$

—

$

102

$

33

Change in unsettled repurchases of Class A common stock

$

74

$

—

$

94

$

—

Reconciliation of GAAP to Non-GAAP Results

(In millions, except percentages)

(Unaudited)

Three Months Ended
December 31,

Year Ended
December 31,

2017

2016

2017

2016

GAAP revenue

$

12,972

$

8,809

$

40,653

$

27,638

 Foreign exchange effect on 2017 revenue using 2016 rates

(329)



(293)


Revenue excluding foreign exchange effect

$

12,643



$

40,360


GAAP revenue year-over-year change %

47

%


47

%

Revenue excluding foreign exchange effect year-over-year change %

44

%


46

%

GAAP advertising revenue

$

12,779

$

8,629

$

39,942

$

26,885

 Foreign exchange effect on 2017 advertising revenue using 2016 rates

(327)



(292)


Advertising revenue excluding foreign exchange effect

$

12,452



$

39,650


GAAP advertising revenue year-over-year change %

48

%


49

%

Advertising revenue excluding foreign exchange effect year-over-year










change %

44

%


47

%









Net cash provided by operating activities

$

7,670

$

4,930

$

24,216

$

16,108

 Purchases of property and equipment

(2,262)

(1,269)

(6,733)

(4,491)

Free cash flow

$

5,408

$

3,661

$

17,483

$

11,617

SOURCE Facebook