Facebook Reports Fourth Quarter and Full Year 2018 Results

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Facebook

Jan 30, 2019, 16:05 ET

MENLO PARK, Calif., Jan. 30, 2019 /PRNewswire/ -- Facebook, Inc. (Nasdaq: FB) today reported financial results for the quarter and full year ended December 31, 2018.

"Our community and business continue to grow," said Mark Zuckerberg, Facebook founder and CEO. "We've fundamentally changed how we run our company to focus on the biggest social issues, and we're investing more to build new and inspiring ways for people to connect."

Fourth Quarter and Full Year 2018 Financial Highlights


Three Months Ended
December 31,


Year-over-Year %
Change


Year Ended
December 31,


Year-over-Year %
Change

In millions, except percentages and per share amounts

2018


2017



2018


2017


Revenue:












   Advertising

$

16,640



$

12,779



30

%


$

55,013



$

39,942



38

%

   Payments and other fees

274



193



42

%


825



711



16

%

Total revenue

16,914



12,972



30

%


55,838



40,653



37

%

Total costs and expenses

9,094



5,620



62

%


30,925



20,450



51

%

Income from operations

$

7,820



$

7,352



6

%


$

24,913



$

20,203



23

%

Operating margin

46

%


57

%




45

%


50

%



Provision for income taxes(1)

$

1,089



$

3,194



(66)

%


$

3,249



$

4,660



(30)

%

Effective tax rate(1)

14

%


43

%





13

%


23

%



Net income(1)

$

6,882



$

4,268



61

%


$

22,112



$

15,934



39

%

Diluted Earnings per Share (EPS)(1)

$

2.38



$

1.44



65

%


$

7.57



$

5.39



40

%



(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.

Fourth Quarter and Full Year 2018 Operational and Other Financial Highlights

  • Daily active users (DAUs) – DAUs were 1.52 billion on average for December 2018, an increase of 9% year-over-year.
  • Monthly active users (MAUs) – MAUs were 2.32 billion as of December 31, 2018, an increase of 9% year-over-year.
  • Mobile advertising revenue – Mobile advertising revenue represented approximately 93% of advertising revenue for the fourth quarter of 2018, up from approximately 89% of advertising revenue in the fourth quarter of 2017.
  • Capital expenditures – Capital expenditures were $4.37 billion and $13.92 billion for the fourth quarter and full year 2018, respectively.
  • Cash and cash equivalents and marketable securities – Cash and cash equivalents and marketable securities were $41.11 billion at the end of the fourth quarter of 2018.
  • Headcount – Headcount was 35,587 as of December 31, 2018, an increase of 42% year-over-year.

In addition, we estimate that around 2.7 billion people now use Facebook, Instagram, WhatsApp, or Messenger (our "Family" of services) each month, and more than 2 billion people use at least one of our Family of services every day on average.

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 6461349.

Transcripts of conference calls with publishing equity research analysts held today will also be posted to the investor.fb.com website.

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 products and changes to existing products as well as other new business initiatives; our emphasis on user growth and engagement and the user experience over short-term financial results; maintaining and enhancing our brand and reputation; our ongoing safety, security, and content review efforts; competition; risks associated with government actions that could restrict access to our products or impair our ability to sell advertising in certain countries; litigation and government inquiries; 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 October 31, 2018, 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, 2018. In addition, please note that the date of this press release is January 30, 2019, 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, 2018 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, net. We subtract net 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,



2018


2017


2018


2017


Revenue

$

16,914



$

12,972



$

55,838



$

40,653



Costs and expenses:









Cost of revenue

2,796



1,611



9,355



5,454



Research and development

2,855



1,949



10,273



7,754



Marketing and sales

2,467



1,374



7,846



4,725



General and administrative

976



686



3,451



2,517



Total costs and expenses

9,094



5,620



30,925



20,450



Income from operations

7,820



7,352



24,913



20,203



Interest and other income (expense), net

151



110



448



391



Income before provision for income taxes

7,971



7,462



25,361



20,594



Provision for income taxes

1,089



3,194



3,249



4,660



Net income

$

6,882



$

4,268



$

22,112



$

15,934



Less: Net income attributable to participating securities

—



2



1



14



Net income attributable to Class A and Class B common stockholders

$

6,882



$

4,266



$

22,111



$

15,920



Earnings per share attributable to Class A and Class B common









stockholders:









Basic

$

2.40



$

1.47



$

7.65



$

5.49



Diluted

$

2.38



$

1.44



$

7.57



$

5.39



Weighted average shares used to compute earnings per share









attributable to Class A and Class B common stockholders:









Basic

2,872



2,907



2,890



2,901



Diluted

2,886



2,954



2,921



2,956



Share-based compensation expense included in costs and expenses:









Cost of revenue

$

82



$

50



$

284



$

178



Research and development

675



587



3,022



2,820



Marketing and sales

130



106



511



436



General and administrative

84



71



335



289



Total share-based compensation expense

$

971



$

814



$

4,152



$

3,723



FACEBOOK, INC.


CONDENSED CONSOLIDATED BALANCE SHEETS


(In millions)


(Unaudited)





December 31, 2018


December 31, 2017


Assets





Current assets:






Cash and cash equivalents

$

10,019



$

8,079




Marketable securities

31,095



33,632




Accounts receivable, net of allowances of $229 and $189 as of December 31,








2018 and 2017, respectively

7,587



5,832




Prepaid expenses and other current assets

1,779



1,020





Total current assets

50,480



48,563



Property and equipment, net

24,683



13,721



Intangible assets, net

1,294



1,884



Goodwill

18,301



18,221



Other assets

2,576



2,135



Total assets

$

97,334



$

84,524










Liabilities and stockholders' equity





Current liabilities:






Accounts payable

$

820



$

380




Partners payable

541



390




Accrued expenses and other current liabilities

5,509



2,892




Deferred revenue and deposits

147



98





Total current liabilities

7,017



3,760



Other liabilities

6,190



6,417





Total liabilities

13,207



10,177



Commitments and contingencies





Stockholders' equity:






Common stock and additional paid-in capital

42,906



40,584




Accumulated other comprehensive loss

(760)



(227)




Retained earnings

41,981



33,990





Total stockholders' equity

84,127



74,347



Total liabilities and stockholders' equity

$

97,334



$

84,524



FACEBOOK, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)


Three Months Ended
December 31,


Year Ended
December 31,


2018


2017*


2018


2017*

Cash flows from operating activities








Net income

$

6,882



$

4,268



$

22,112



$

15,934


Adjustments to reconcile net income to net cash provided by operating








activities:








    Depreciation and amortization

1,225



853



4,315



3,025


    Share-based compensation

971



814



4,152



3,723


    Deferred income taxes

201



(225)



286



(377)


    Other

(19)



5



(64)



24


Changes in assets and liabilities:








   Accounts receivable

(1,564)



(1,374)



(1,892)



(1,609)


   Prepaid expenses and other current assets

198



441



(690)



(192)


   Other assets

(60)



26



(159)



154


   Accounts payable

133



50



221



43


   Partners payable

41



73



157



95


   Accrued expenses and other current liabilities

378



215



1,417



309


   Deferred revenue and deposits

33



(7)



53



4


   Other liabilities

(735)



2,531



(634)



3,083


Net cash provided by operating activities

7,684



7,670



29,274



24,216


Cash flows from investing activities








Purchases of property and equipment, net

(4,366)



(2,262)



(13,915)



(6,733)


Purchases of marketable securities

(1,997)



(5,272)



(14,656)



(25,682)


Sales of marketable securities

1,254



1,795



12,358



9,444


Maturities of marketable securities

1,381



760



4,772



2,988


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

—



(17)



(137)



(122)


Other investing activities, net

(21)



(7)



(25)



(13)


Net cash used in investing activities

(3,749)



(5,003)



(11,603)



(20,118)


Cash flows from financing activities








Taxes paid related to net share settlement of equity awards

(545)



(885)



(3,208)



(3,246)


Repurchases of Class A common stock

(3,500)



(958)



(12,879)



(1,976)


Net change in overdraft in cash pooling entities

500



—



500



—


Other financing activities, net

4



1



15



(13)


Net cash used in financing activities

(3,541)



(1,842)



(15,572)



(5,235)


Effect of exchange rate changes on cash, cash equivalents, and restricted cash

(14)



40



(179)



232


Net increase (decrease) in cash, cash equivalents, and restricted cash

380



865



1,920



(905)


Cash, cash equivalents, and restricted cash at beginning of the period

9,744



7,339



8,204



9,109


Cash, cash equivalents, and restricted cash at end of the period

$

10,124



$

8,204



$

10,124



$

8,204










Reconciliation of cash, cash equivalents, and restricted cash to the








condensed consolidated balance sheets








Cash and cash equivalents

$

10,019



$

8,079



$

10,019



$

8,079


Restricted cash, included in prepaid expenses and other current assets

10



18



10



18


Restricted cash, included in other assets

95



107



95



107


Total cash, cash equivalents, and restricted cash

$

10,124



$

8,204



$

10,124



$

8,204



*Prior-period information has been retrospectively adjusted due to our adoption of ASU No. 2016-18, Statement of Cash Flows, Restricted Cash (Topic 230) on January 1, 2018.

FACEBOOK, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)


Three Months Ended
December 31,


Year Ended
December 31,


2018


2017*


2018


2017*

Supplemental cash flow data








Cash paid during the period for:








Interest

$

1



$

—



$

1



$

—


Income taxes, net

$

1,034



$

324



$

3,762



$

2,117


Non-cash investing and financing activities:








Net change in prepaids and liabilities related to property and equipment additions

$

306



$

(44)



$

918



$

495


Settlement of acquisition-related contingent consideration liability

$

—



$

—



$

—



$

102


Change in unsettled repurchases of Class A common stock

$

44



$

74



$

51



$

94



*Prior-period information has been retrospectively adjusted due to our adoption of ASU No. 2016-18, Statement of Cash Flows, Restricted Cash (Topic 230) on January 1, 2018.

Reconciliation of GAAP to Non-GAAP Results

(In millions, except percentages)

(Unaudited)


Three Months Ended
December 31,


Year Ended
December 31,


2018


2017


2018


2017

GAAP revenue

$

16,914



$

12,972



$

55,838



$

40,653


Foreign exchange effect on 2018 revenue using 2017 rates

348





(401)




Revenue excluding foreign exchange effect

$

17,262





$

55,437




GAAP revenue year-over-year change %

30

%




37

%



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

33

%




36

%



GAAP advertising revenue

$

16,640



$

12,779



$

55,013



$

39,942


Foreign exchange effect on 2018 advertising revenue using 2017 rates

347





(401)




Advertising revenue excluding foreign exchange effect

$

16,987





$

54,612




GAAP advertising revenue year-over-year change %

30

%




38

%



Advertising revenue excluding foreign exchange effect year-over-year change %

33

%




37

%











Net cash provided by operating activities

$

7,684



$

7,670



$

29,274



$

24,216


Purchases of property and equipment, net

(4,366)



(2,262)



(13,915)



(6,733)


Free cash flow

$

3,318



$

5,408



$

15,359



$

17,483


SOURCE Facebook