The Ford (NYSE: F) IPO was thought to be the largest in history, till the Facebook (NASDAQ: FB) IPO swiftly blew apart that illusion. Raking in $16 billion, the company shattered every record in existence. But, that’s when the tables turned; Facebook stock, soon after, drastically decreased in value to almost half its offering price.
Setting off alarms bells, this steep decline reflected Facebook’s failure to meet post-IPO market expectations. It was also a sign of its failure to rein in significant revenues. But in the following years, Facebook stock has made a successful comeback—today, as of Feb 24, 2015, each share of Facebook trades at $78.45, at nearly double the IPO price.
The fourth quarter of FY 2014 turned out be a fantastic one for this social media company. Below, we’ll be delving deeper into Facebook’s Q4 performance.
Riding the Bull Tide
FY 2014 turned out to be an acquisition-intensive year for Facebook, with both WhatsApp and Oculus now part of its growing subsidiary chain. With 1.39 billion monthly active users (MAUs) by the end of Q4, this company’s user base showed a year-over-year increase of 13%.
Likewise, Instagram now flaunts nearly 300 million MAUs, while WhatsApp has over 700 million monthly active users. By effectively monetizing these new acquisitions, Facebook can considerably grow its revenue pool in 2015.
Beating market expectations is nothing new for Facebook; it reported fourth-quarter revenues of $3.85 billion, $80 million more than Wall Street’s estimate of $3.77 billion. At $3.59 billion, advertising revenues accounted for most of the company’s overall revenues, increasing 53% year-on-year.
Mobile ad revenue is the new saviour, doubling to $2.5 billion in the last quarter from $1.2 billion in Q4, FY 2013. This means that mobile advertising constituted nearly 69% of Facebook’s revenues in the last quarter.
Apart from displaying strong revenue performance, the social media giant also yielded earnings of $0.54 per share—more than the analysts’ estimate of $0.48 a share.
What the Year Holds In Store
Based on the recent fluctuations in exchange rates, Facebook predicts a 5% reduction in 2015 revenues. On the other hand, the company’s capital expenditure in FY 2015 is expected to be anywhere between $2.7 billion to $3.2 billion.
Facebook intends to ramp up investments in new areas like WhatsApp, Oculus, and Internet.org. This corresponds with their hiring strategy; the tech major ended 2014 on a highly positive note, with 45% more talent than the year before.
The company continues to focus on richer content in the form of photographs and videos—while more than 2 billion photos are shared everyday across Facebook, Instagram, and WhatsApp, the number of video views per day is around 3 billion on Facebook alone.
Gauging the Other Extreme
It is important to keep in mind that this company relies solely on ad revenues for its sustenance. Essentially, Facebook needs to diversify its sources of income before ad revenues hit a peak level.
As Facebook exceeds market estimates each quarter, it becomes increasingly difficult for the company to repeatedly raise the bar. This is simply because, the better the company performs, the more the market expects from it; one small misstep in the future could be enough to send Facebook stock sinking to the stock market seabed.
In order to maintain its bullish stance on the stock market, the company needs to carefully mitigate multiple risk factors while making the right kind of capital investments.