Zuckerberg: Facebook Is Now a Mobile Company

Q4 Revenue Reaches $1.56B, While non-GAAP Earnings at $0.17 Per Share
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During a fourth quarter earning call describing generally better than expected results, Facebook executives stressed the progress they'd made in expanding their new product, particularly those in the mobile area, and the effectiveness of their advertising products.

At the start of the call Facebook chairman and CEO Mark Zuckerberg, noted that active daily mobile users now exceed those from the desktop computer platform. He also acknowledged that responding to the move to mobile had been "a challenge" for the company because it started the year with "apps that weren't as high quality as we wanted and no ads in our apps at all."

Addressing those problems was particularly important for Facebook. Its stock had slumped dramatically following its IPO last year over concerns that it would continue to rapidly grow revenue, falling from $38 to under $20 a share.

Better-Than-Expected Results

The 2012 results showed major progress in addressing those concerns, with full year revenue jumping from $3.71 billion in 2011 to $5.09 billion. Non GAAP net also rose from $1.16 billion to $1.32 billion while GAAP net income fell from $1.00 billion to $53 million, thanks to increased investments.

Facebook COO Sheryl Sandberg spent considerable time discussing various examples of the effectiveness of advertising on Facebook and reported that the company's ad revenue jumped 41% in the fourth quarter.

Very importantly, Facebook reported significant progress in its attempts to expand mobile revenues, which boosted overall fourth quarter 2012 revenue to $1.56 billion and non-GAAP income to about $736 million or $0.17 a share. GAAP net income was $64 million or about $0.03 a share.

Analysts had been expecting revenue of around $1.51 billion according to The Wall Street Journal and non GAAP earnings of around $0.15 cents and GAPP earnings of $0.03.

Still the stock declined in afterhours trading, however, by about 4.29% to $29.90 at 6 p.m. (ET), reflecting the hefty investments the company plans to make in 2013 to continue to grow its advertising and mobile business.

Progress on Mobile

During the call, Facebook executives highlighted the major shift that users are making to mobile device. They noted that the number of monthly active mobile users grew 57% between the end of 2011 and 2012, when they hit 680 million, making them a significant portion of the company's 1.06 billion active users.

Mobile daily active users also exceeded web daily active users for the first time in the fourth quarter, Zuckerberg reported. He also noted that Facebook is now 23% of all time spent on apps in the U.S. and next biggest was Instagram with 3%, according to comScore.

"If you put them together we are now more than one quarter of the time spent in apps," Zuckerberg noted. "Today there is no argument. Facebook is a mobile company."

Facebook did report that mobile revenue now accounts for 23% of its ad revenue in the fourth quarter, up from 14% in the third quarter.

Costs Continue to Rise

Fourth-quarter costs and expenses hit $1.06 billion, up 82% from a year earlier. This reduced GAAP operating margins to 33%.

Brian Wieser, senior research analyst at Pivotal Research Group noted in a report following the earnings release that "mobile advertising is more expensive to service than is desktop online advertising," and that "contributed to significantly higher costs and expenses."

Zuckerberg note that those costs of developing new products are likely to continue to rise, noting that the company had "made the decision to quickly grow headcount" and that they expect expenses to grow faster than revenue.

In 2012, the number of employees grew to 4,619 from 3,200 in 2011 and 1,218 in 2009. The increase in employees had been driven by hiring in tech groups, noted CFO David Ebersman.

He added that "2013 will be a year for investment" where expenses are likely to grow by 50%.