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Facebook's Third Quarter Revenue Report for 2012. The slides belong to Facebook Inc and can be originallly downloaded from: http://investor.fb.com/eventdetail.cfm?eventid=119191
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Quarterly Earnings Slides
Q3 2012
Safe Harbor
This presentation contains forward-looking statements, which are subject to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. All statements other than statements of historical facts
contained in this presentation, including statements regarding our estimates of future stock-based
compensation expense, are forward-looking statements. These forward-looking statements are only
predictions and may differ materially from actual results due to a variety of factors, including variations in the
future price of our common stock as well as future grants and forfeitures of equity awards. In addition, please
note that the date of this presentation is October 23, 2012, 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.
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.
3
Monthly Active Users (MAUs)
Please see Facebook's Form 10-Q for the quarter ended September 30, 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.
144 154 163 169 176 179 183 186 189
167 183 201 212 221 229 239 246 253 113
138 156
174 196 212
234 255 277
126 133
161 183
207 225
245 268
288
550
608
680
739
800 845
901
955 1,007
Q3'10 Q4'10 Q1'11 Q2'11 Q3'11 Q4'11 Q1'12 Q2'12 Q3'12
Millions of MAUs Rest of World
Asia
Europe
US & Canada
4
Daily Active Users (DAUs)
92 99 105 117 124 126 129 130 132
94 107 120 127 135 143 152 154 160 54
64 72
85 98 105
119 129 141
54 58
74
87 100
109 126
139 152
293 327
372
417
457 483
526 552
584
Q3'10 Q4'10 Q1'11 Q2'11 Q3'11 Q4'11 Q1'12 Q2'12 Q3'12
DAUs / MAUs
Q3'10 Q4'10 Q1'11 Q2'11 Q3'11 Q4'11 Q1'12 Q2'12 Q3'12
53% 54% 55% 56% 57% 57% 58% 58% 58%
Millions of DAUs Rest of World
Asia
Europe
US & Canada
Please see Facebook's Form 10-Q for the quarter ended September 30, 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.
5
Mobile Monthly Active Users (Mobile MAUs)
Millions of Mobile MAUs
Please see Facebook's Form 10-Q for the quarter ended September 30, 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.
196
245 288
325
376
432
488
543
604
Q3'10 Q4'10 Q1'11 Q2'11 Q3'11 Q4'11 Q1'12 Q2'12 Q3'12
Payments and other fees
Advertising
6
Revenue
Millions of Dollars
$450
$655 $637 $776 $798
$943 $872
$992 $1,086
$17
$76 $94
$119 $156
$188 $186
$192
$176
$467
$731 $731
$895 $954
$1,131 $1,058
$1,184 $1,262
Q3'10 Q4'10 Q1'11 Q2'11 Q3'11 Q4'11 Q1'12 Q2'12 Q3'12
Rest of World
Asia
Europe
US & Canada
7
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
$271
$412 $394 $471 $482
$567 $525 $590 $637 $134
$218 $229
$275 $290
$361 $328
$346 $341
$37
$58 $62
$82 $104
$115
$118
$135 $154
$25
$43 $47
$65 $78
$87
$87
$113
$130
$467
$731 $731
$895 $954
$1,131
$1,058
$1,184
$1,262
Q3'10 Q4'10 Q1'11 Q2'11 Q3'11 Q4'11 Q1'12 Q2'12 Q3'12
Rest of World
Asia
Europe
US & Canada
8
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.
$260 $359 $332
$394 $395 $462 $419
$479 $538
$130
$201 $206
$245 $245
$306 $274
$294
$295
$36
$53 $56
$74 $88
$95
$99
$115
$133
$24
$41 $44
$61 $71
$79
$79
$104
$120
$450
$655 $637
$776 $798
$943
$872
$992
$1,086
Q3'10 Q4'10 Q1'11 Q2'11 Q3'11 Q4'11 Q1'12 Q2'12 Q3'12
Millions of Dollars
Rest of World
Asia
Europe
US & Canada
9
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.
$11
$53 $62
$77 $87
$105 $106 $111 $99
$17
$23
$30
$45
$55 $54 $52
$46
$5
$6
$8
$16
$20 $19 $20
$21
$2
$3
$4
$7
$8 $8 $9
$10
$17
$76
$94
$119
$156
$188 $186 $192
$176
Q3'10 Q4'10 Q1'11 Q2'11 Q3'11 Q4'11 Q1'12 Q2'12 Q3'12
Millions of Dollars
10
Payments Revenue Recognition Timing
Therefore starting in Q4, we expect to record all Payments revenues in the month the transaction occurs, net of estimated refunds or chargebacks. We anticipate that this change will result in a one-time increase in Payments revenue in the fourth quarter as we recognize revenue from an extra month of payments transactions (those occurring in September through December.)
In Q3 and prior, due to insufficient transaction history, Payments revenues have been recognized after the claim period lapses.
For example, transactions occurring in June are recognized as revenue 30 days later, in July, and included in Q3 revenue. So Q3 revenue reflects transactions that occurred during the months of June, July and August.
In Q4 we will have 24 months of historical
transactional information at which time we believe we will be able to reasonably estimate future refunds and chargebacks.
Q 3 2012 Q 4 2012 Q1 2013
June Jul Aug Sept Oct Nov Jan Mar Feb Dec
Payments terms and conditions provide for a 30-day claim period following a Payments transaction during which the customer may dispute the transaction.
11
Average Revenue per User (ARPU)
$0.36
$0.46 $0.43
$0.50
$0.56 $0.56 $0.53 $0.55 $0.58
Q3'10Q4'10Q1'11Q2'11Q3'11Q4'11Q1'12Q2'12Q3'12
Asia
$1.93
$2.77 $2.49
$2.84 $2.80
$3.20 $2.90
$3.20 $3.40
Q3'10Q4'10Q1'11Q2'11Q3'11Q4'11Q1'12Q2'12Q3'12
US & Canada& Canada
$0.84
$1.25 $1.19 $1.33 $1.34
$1.60
$1.40 $1.43 $1.37
Q3'10Q4'10Q1'11Q2'11Q3'11Q4'11Q1'12Q2'12Q3'12
Europe
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. 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.
$0.90
$1.26 $1.14
$1.26 $1.24 $1.38
$1.21 $1.28 $1.29
Q3'10Q4'10Q1'11Q2'11Q3'11Q4'11Q1'12Q2'12Q3'12
Worldwide
$0.22
$0.33 $0.31
$0.38 $0.40
$0.41
$0.37
$0.44 $0.47
Q3'10Q4'10Q1'11Q2'11Q3'11Q4'11Q1'12Q2'12Q3'12
Rest of the World
12
Share-Based Compensation Expense
$25 $58 $59 $74 $97 $113 $138 $135
$986
$28 $30
$4 $6 $7
$64 $70 $76 $103
$1,106
$179 $190
Q3'10 Q4'10 Q1'11 Q2'11 Q3'11 Q4'11 Q1'12 Q2'12 Q3'12 Q4'12E
~
Millions of Dollars Pre-2011 RSUs
Post-2011 RSUs
Options & Other
Q4 2012 expenses are estimates and exclude any potential impact of future acquisitions.
13
Expenses as a % of Revenue
11% 9% 12% 11% 12%
12% 11% 14%
33%
13%
Q3'11 Q4'11 Q1'12 Q2'12 Q3'12
Marketing & Sales
24% 22%
26% 25% 25%
25% 22%
26%
31%
26%
Q3'11 Q4'11 Q1'12 Q2'12 Q3'12
Cost of Revenue
8% 7% 9% 9% 11%
11% 11% 14%
60%
19%
Q3'11 Q4'11 Q1'12 Q2'12 Q3'12
Research & Development
6% 7% 8% 11% 10%
9% 8% 10%
39%
12%
Q3'11 Q4'11 Q1'12 Q2'12 Q3'12
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
14
GAAP Income (Loss) from Operations & Margin
$216 $437 $388 $407 $414
$548 $381
$(743)
$377
Q3'10 Q4'10 Q1'11 Q2'11 Q3'11 Q4'11 Q1'12 Q2'12 Q3'12
Income (Loss) from Operations ($M)
46% 60% 53% 45% 43% 48% 36%
(63%)
30%
Q3'10 Q4'10 Q1'11 Q2'11 Q3'11 Q4'11 Q1'12 Q2'12 Q3'12
Operating Margin
15
Effective Tax Rate
Q2 and Q3 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. A combination of tax benefits recorded in Q2 and tax provisions in Q1 and Q3 result in an approximately 0% effective tax rate in the year-to-date period.
(in millions) Q1 Q2 Q3
2012 2012 2012 2012
Revenue 1,058$ 1,184$ 1,262$ 3,504$
Costs and expenses:
Cost of revenue 277 367 322 967
Research and development 153 705 244 1,102
Marketing and sales 143 392 168 703
General and administrative 104 463 151 717
Total costs and expenses 677 1,927 885 3,489
Income from operations 381 (743) 377 15
Interest and other income (expense), net
Interest expense (13) (10) (11) (35)
Other income (expense), net 14 (12) 6 9
Income (loss) before provision for income taxes 382 (765) 372 (11)
Provision for (benefit from) income taxes 177 (608) 431 -
Net income (loss) 205$ (157)$ (59)$ (11)$
Effective Tax Rate 46% 79% 116% 0%
YTD
16
GAAP Net Income (Loss)
$131
$251 $233 $240 $227
$302
$205
$(157)
$(59)
Q3'10 Q4'10 Q1'11 Q2'11 Q3'11 Q4'11 Q1'12 Q2'12 Q3'12
Millions of Dollars
17
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 YTD
$273 $311
$804
$890
Q3 2011 Q3 2012 YTD '11 YTD '12
18
Capital Investments
Millions of Dollars Property and equipment acquired
under capital leases
Purchases of property
and equipment
Annual YTD
$33
$293
$606
$421
$1,037
$56
$217
$473
$393
$251
$89
$510
$1,079
$814
$1,288
2009 2010 2011 YTD'11 YTD'12
Period-end Headcount
19
Employees
Annual YTD
1,218
2,127
3,200 2,958
4,331
2009 2010 2011 YTD'11 YTD'12
Appendix
21
Reconciliations
2011 2012 2011 2012
GAAP net income (loss) 227$ (59)$ 698$ (11)$
Share-based compensation expense 70 179 141 1,388
Payroll tax expenses related to share-based compensation - (31) 7 122
Income tax adjustments (24) 222 (42) (609)
Non-GAAP net income 273$ 311$ 804$ 890$
September 30, September 30,
Three Months Ended Nine Months Ended
Limitations of Key Metrics
The numbers of our MAUs and DAUs and average revenue per user (ARPU) are calculated using internal
company data. 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 4.8% of our worldwide MAUs as of June 30, 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 June 30, 2012, for example, we estimate user-misclassified
accounts may have represented approximately 2.4% of our worldwide MAUs and undesirable accounts
may have represented approximately 1.5% 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.
22
Limitations of Key Metrics (continued)
Our metrics are also 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 use 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 and 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.
23