Facebook Inc: More Room to Run

Facebook's  mobile usage is growing at a rapid rate and its fundamentals are following suit. Facebook's leading position is surging as the company now has more than 1.23 billion users.

And the company's users remain very engaged with roughly 62% of total users using Facebook every day. The company has diversified its social media presence well with Instagram, which now has has an estimated 180 million MAUs, doubling its user base in 2013.

Strong numbers across the board
Facebook enjoyed accelerating revenue growth in 2013, which is rare for a big company. The company's sales stood at $7.9 billion which was a 55% year-over-year increase. Its diluted earnings per share for 2013 stood at $0.60 a huge increase from 2012. Facebook's cash balance grew to $11.5 billion, as the company raised an additional $1.5 billion with an additional offering, and this gives the company more flexibility to pursue inorganic growth opportunities through M&A activity.

The company's margin expansion has led to strong growth in free cash flow, which grew to $2.85 billion in 2013. Facebook's revenue growth from the payments business has not been growing and stood at $241 million last quarter. However, advertising revenue grew by more than 65% in all its geographic segments.

The number of ad impressions on Facebook's platform declined by 8% but were easily offset by a 92% increase in ad pricing. Ad impressions declined because the company shows fewer ads on mobile relative to desktop, but the pricing of ads increased because of higher engagement and click-through rates on mobile devices. Facebook's average revenue per user, or ARPU, grew to $6.81, which represents a 28% increase from 2012. 

Mobile growth is phenomenal
The pop of the stock was not only due to the big beat of estimates, but also because of the company's solid growth on mobile devices. Total number of users logging on through mobile devices stood at 77%, which is a big increase from the 59% last year. For the first time in Facebook's operating history, advertising revenue on mobile devices surpassed desktop ad sales.

Twitter  also has a strong foothold on mobile devices. Roughly 76% of Twitter's total user base, (232 million users), access the site through mobile devices. As a result, Twitter earns 70% of its advertising revenue from mobile. On a comparative basis, Facebook earned 53% of its advertising revenue from mobile devices, and should earn more from mobile in the future.  

Facebook's quarterly revenue on mobile devices crossed $1 billion dollars for the first time as mobile ad sales grew roughly 306% year over year to $1.24 billion. In the last quarter, Facebook's Mobile MAUs grew 39% year over year to 945 million, and the company's mobile audience is a lot more engaged relative to its desktop members.

Facebook's CFO disclosed that the number of daily users on mobile outnumbered desktop users by roughly 200 million. And the company's CEO Mark Zuckerberg seems to be very excited about coming out with more engaging mobile experiences.  In fact, Facebook just announced Paper, which is an app that aggregates and brings together different stories in one layout. 

Advertisers are diving in
The number of small and medium businesses with an active Facebook page have surged to more than 25 million, and the company is offering more simplified advertising options to these businesses to convert them into paying marketers.

Facebook is aiding more developers to acquire new customers through mobile app-install ads and it remains a growing revenue stream. In addition, the company is working with various brand marketers and helping them to reach their desired consumer groups. Facebook is testing video ads with select brand marketers to determine the impact on sales and this will likely be rolled out on a much broader scale.

The company's measurement and targeting tools have been crucial for its strong revenue growth in 2013. Facebook's custom audiences product is enabling marketers to choose their target customers in a very precise way and is generating strong ROI for advertisers. Ads placed on the Facebook newsfeed have done very well for marketers on both mobile and desktop. This is appealing to newer advertisers.

Going forward
Facebook's scale and reach has hit unprecedented levels. The social media site is the only platform where more than 750 million users tune in everyday, and this provides the company with a lot of useful data for their advertising clients.

Facebook's strong growth in revenue was driven by more newsfeed ads, higher consumer engagement, and both these drivers are likely to continue to grow. In addition, it still has a number of future earnings drivers like Instagram and video ads that will propel the business.