Live Wrap: Will Facebook’s Fourth-Quarter Results Keep the Bears Away?

Facebook (NASDAQ:FB) was on a tear heading into its fourth-quarter and full-year 2012 earnings. Shares have climbed over 60 percent since the middle of November, and closed January 30 at $31.24. The market’s initial reaction to the earnings report was negative, but a 7 percent initial drop simmered away just 40 minutes after the release.

Here are the key fourth-quarter highlights from the report:

  • Revenue increases 40.1 percent to $1.58 billion, ahead of estimates for $1.53 billion.
  • EPS increases 13.3 percent to $0.17, ahead of estimates for $0.15.
  • Monthly Active Users increase 25 percent to 1.06 billion. Daily active users increase 28 percent to 618 million. Mobile MAUs increase 57 percent to 680 million. Mobile revenue increases 9 points to 23 percent of total ad revenue.
  • Operating costs climb 67 percent to $849 million. Margins shrink from 48 to 33 percent.
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From the earnings call:

(7:12 p.m.) Shares conclude the after-hours session down 3.52 percent.

(6:02 p.m.) Zuckerberg: Our relationship with Google is one where the company’s don’t really talk. Good thing the Android platform is open! Zuckerberg suggests that integrating with iOS requires working directly with Apple (NASDAQ:AAPL), where integrating with Android just requires using the platform.

(6:00 p.m.) Nothing to share on FBX mobile at this point.

Question: When will Gifts become a significant part of the revenue gifts?

Answer: We’re not sure yet. We’re still figuring it out.

(5:55 p.m.) Asked about whether or not there’s an opportunity to add inventory to the mobile ad experience.

“On the mobile side, it’s important to recognize that it’s still really early.” Facebook suggests that it is still trying to figure out what’s going on, i.e. “opportunity.”

(5:50 p.m.) Average revenue per user climbs 34 percent from 2010 to 2012, from $3.97 to $5.32. For 2012, ARPU is $13.58 in the U.S. and Canada, $5.91 in Europe, $2.35 in Asia, and $1.84 in the rest of the world.

(5:47 p.m.) U.S. and Canada accounts for 47.4 percent of total ad revenue, Europe accounts for 28.1 percent, Asia accounts for 12.6 percent, and “the rest of the world” accounts for 11.7 percent.

(5:45 p.m.) Between Q4 2010 and Q4 2012, advertising revenue grew 75 percent in the U.S. and Canada, 86 percent in Europe, 216 percent in Asia, and 280 percent in “the rest of the world.”

(5:40 p.m.) When asked about how long cost growth is expected to outpace revenue growth, Facebook is fuzzy on the duration. Video ads could be in the future.

(5:38 p.m.) Google’s (NASDAQ:GOOG) knowledge graph comes up in Q&A as a comparison for Facebook’s graph search.

“We’re coming from a different place,” says Zuckerberg. Suggests graph search is more structured through its social quality, and that the search will encourage encourage users to make the 1 trillion connections between them even more structured.

(5:37 p.m.) Shares are simmering down about 2 percent.

(5:35 p.m.) Zuckerberg suggests that advertising should mimic the media that users are using organically.

“Our job is to make Facebook a better, more useful product.” For both users and advertisers, but questions seem to come in weighing the importance of each group differently.

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Sheryl Sandberg, when asked about Facebook Exchange, says that it produces a much higher return on ad spending than other platforms. FBX is “one way of making ads better targeted,” and “custom audiences is another.”

Sandburg suggests that when ads are better for users, they are better for advertisers. Facebook seems to really be treading the water carefully — strong user experience means strong ad sales.

(5:33 p.m.) Inserting ads in the Newsfeed had just a 2 percent reduction in the number of Likes. Zuckerberg calls the amount marginal when compared to improvements.

(5:30 p.m.) Remember that Zuckerberg suggested that costs could increase at a faster rate than revenue. Revenue for the fourth quarter grew 40.1 percent, while costs grew 61.1 percent.

Call is open for questions.

(5:28 p.m.) Games are suffering from declining desktop usage, as game revenues are generated almost entirely from desktop usage….

So… will mobile kill Zynga (NASDAQ:ZNGA)? Estimates suggest that Zynga pulls the vast majority of its revenue from a 70/30 split with Facebook.

(5:25 p.m.) Stock is back down 2.3 percent after all the advertising happy talk. The company promises great things in 2013, a lot of loose-bolt tightening. So far, nothing about actually growing its mobile user base (although the focus is clearly on monetizing it), or addressing the fact that the user base is growing more rapidly internationally than domestically.

(5:25 p.m.) Call turns to financial details, summarized above.

(5:20 p.m.) Zuckerberg may be all about building a culture and changing the way the world communicates, but the company is all about serving advertisers and mobile app developers. Facebook’s ad strategy: bend over backwards to assist clients, protect user data, and don’t harm the user experience.

(5:18 p.m.) Total mobile monthly active users grew 177.5 percent between Q4 2010 and Q4 2012.

(5:16 p.m.) On the call, Facebook highlights some specific marketing / advertising successes. Custom audiences is touted. Facebook’s ability to integrate its audience and third-party data for highly-targeted ads is highly valuable to advertisers.

Facebook achieved a 30 percent lower cost per acquisition than other platforms through mechanisms like this.

(5:15 p.m.) Some fun daily active user growth figures: Between Q4 2010 and Q4 2012, DAUs grew 36.4 percent in the U.S. and Canada to 135 million, 57.9 percent in Europe to 153 million, 139 percent in Asia to 169 million, and 177 percent to 161 million in “the rest of the world.”

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(5:12 p.m.) Zuckerberg: We aren’t operating to maximize our profits this year. Cost growth may exceed revenue growth.

Zuckerberg argues that it is better to build the right product and “build a better world” than look for short-term profits. How well will this go over with the investors? Shares are off just a fraction in the after market, but occasionally sees lower dips.

(5:10 p.m.) Zuckerberg highlights 0 to 23 percent ad revenue from mobile within the year. Again, mobile accounts for 57 percent of MAUs. Zuckerberg suggests that future advertising products will focus on more than text and images.

This might mean harvesting those social connections, i.e. gifts. Gifts is a “big opportunity long term,” but for this year at least, ads are the focus.

(5:07 p.m.) Zuckerberg: “This quarter, I think we built the most interesting product with Social Graph.” Says that Facebook will continue to refine the product and work toward monetization down the road. Emphasis on social connections and serving app developers and advertisers.

(5:05 p.m.) Zuckerberg: “Today, there’s no argument. Facebook is a mobile company.” Zuckerberg references a comScore study that says the Facebook app accounts for 23 percent of all time spent on apps, and Instagram ties for second at 3 percent.

(5:00 p.m.) MAUs grew just 2.1 percent quarter-to-quarter in the U.S., 3.1 percent in Europe, 7.5 percent in Asia, and 5.5 percent in the rest of the world.

Facebook’s fastest quarter-to-quarter MAU growth was in Asia.

(5:00 p.m.) Between the fourth-quarter of 2010 and the fourth-quarter of 2012, Facebook’s MAUs grew 25.3 percent in the U.S. and Canada to 193 million, 42.6 percent in Europe to 261 million, 115.9 percent in Asia 298 million, and 128.6 percent in the rest of the world to 304 million.

Facebook has more users and the fastest growth in “the rest of the world” than anywhere else.