Facebook Reports Third Quarter 2019 Results

MENLO PARK, Calif., Oct. 30, 2019 /PRNewswire/ -- Facebook, Inc. (Nasdaq: FB) today reported financial results for the quarter ended September 30, 2019.

"We had a good quarter and our community and business continue to grow," said Mark Zuckerberg, Facebook founder and CEO. "We are focused on making progress on major social issues and building new experiences that improve people's lives around the world."

Third Quarter 2019 Financial Highlights


                                                                                   Three Months Ended September 30,             Year-over-Year %
                                                                                                                     Change




     
              In millions, except percentages and per share amounts   2019                         2018




     Revenue:



        Advertising                                                          $
         17,383                                $
          13,539             28
                                                                                                                                                     %



        Payments and other fees                                          269                                    188                              43
                                                                                                                                                 %




     Total revenue                                                    17,652                                 13,727                              29
                                                                                                                                                 %



     Total costs and expenses                                         10,467                                  7,946                              32
                                                                                                                                                 %




     Income from operations                                                   $
         7,185                                 $
          5,781             24
                                                                                                                                                     %



     
              Operating margin                                          41                                     42
                                                                            %                                     %



     Provision for income taxes                                               $
         1,238



     
              Effective tax rate                                        17
                                                                            %



     Net income                                                               $
         6,091                                 $
          5,137             19
                                                                                                                                                     %



     Diluted earnings per share (EPS)                                          $
         2.12                                  $
          1.76             20
                                                                                                                                                     %

Third Quarter 2019 Operational and Other Financial Highlights

    --  Daily active users (DAUs) - DAUs were 1.62 billion on average for
        September 2019, an increase of 9% year-over-year.
    --  Monthly active users (MAUs) - MAUs were 2.45 billion as of September 30,
        2019, an increase of 8% year-over-year.
    --  Mobile advertising revenue - Mobile advertising revenue represented
        approximately 94% of advertising revenue for the third quarter of 2019,
        up from approximately 92% of advertising revenue in the third quarter of
        2018.
    --  Capital expenditures - Capital expenditures, including principal
        payments on finance leases, were $3.68 billion for the third quarter of
        2019.
    --  Cash and cash equivalents and marketable securities - Cash and cash
        equivalents and marketable securities were $52.27 billion as of
        September 30, 2019.
    --  Headcount - Headcount was 43,030 as of September 30, 2019, an increase
        of 28% year-over-year.

In addition, we estimate that around 2.2 billion people now use Facebook, Instagram, WhatsApp, or Messenger (our "Family" of services) every day on average, and around 2.8 billion people use at least one of our Family of services each month.

Webcast and Conference Call Information

Facebook will host a conference call to discuss the results at 2 p.m. PT / 5 p.m. ET today. The live webcast of Facebook's earnings conference call can be accessed at investor.fb.com, along with the earnings press release, financial tables, and slide presentation. Facebook uses the investor.fb.com and newsroom.fb.com websites as well as Mark Zuckerberg's Facebook Page (https://www.facebook.com/zuck) as means of disclosing material non-public information and for complying with its disclosure obligations under Regulation FD.

Following the call, a replay will be available at the same website. A telephonic replay will be available for one week following the conference call at +1 (404) 537-3406 or +1 (855) 859-2056, conference ID 9647087.

Transcripts of conference calls with publishing equity research analysts held today will also be posted to the investor.fb.com website.

About Facebook

Founded in 2004, Facebook's mission is to give people the power to build community and bring the world closer together. People use Facebook to stay connected with friends and family, to discover what's going on in the world, and to share and express what matters to them.

Contacts

Investors:
Deborah Crawford
investor@fb.com / investor.fb.com

Press:
Bertie Thomson
press@fb.com / newsroom.fb.com

Forward-Looking Statements

This press release contains forward-looking statements regarding our future business expectations. These forward-looking statements are only predictions and may differ materially from actual results due to a variety of factors including: our ability to retain or increase users and engagement levels; our reliance on advertising revenue; our dependency on mobile operating systems, networks, and standards that we do not control; risks associated with new products and changes to existing products as well as other new business initiatives; our emphasis on user growth and engagement and the user experience over short-term financial results; maintaining and enhancing our brand and reputation; our ongoing safety, security, and content review efforts; competition; risks associated with government actions that could restrict access to our products or impair our ability to sell advertising in certain countries; litigation and government inquiries; privacy and regulatory concerns; risks associated with acquisitions; security breaches; and our ability to manage growth and geographically-dispersed operations. These and other potential risks and uncertainties that could cause actual results to differ from the results predicted are more fully detailed under the caption "Risk Factors" in our Quarterly Report on Form 10-Q filed with the SEC on July 25, 2019, which is available on our Investor Relations website at investor.fb.com and on the SEC website at www.sec.gov. Additional information will also be set forth in our Quarterly Report on Form 10-Q for the quarter ended September 30, 2019. In addition, please note that the date of this press release is October 30, 2019, 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.

Non-GAAP Financial Measures

To supplement our condensed consolidated financial statements, which are prepared and presented in accordance with generally accepted accounting principles in the United States (GAAP), we use the following non-GAAP financial measures: revenue excluding foreign exchange effect, advertising revenue excluding foreign exchange effect and free cash flow. The presentation of these financial measures is not intended to be considered in isolation or as a substitute for, or superior to, financial information prepared and presented in accordance with GAAP. Investors are cautioned that there are material limitations associated with the use of non-GAAP financial measures as an analytical tool. In addition, these measures may be different from non-GAAP financial measures used by other companies, limiting their usefulness for comparison purposes. We compensate for these limitations by providing specific information regarding the GAAP amounts excluded from these non-GAAP financial measures.

We believe these non-GAAP financial measures provide investors with useful supplemental information about the financial performance of our business, enable comparison of financial results between periods where certain items may vary independent of business performance, and allow for greater transparency with respect to key metrics used by management in operating our business.

We exclude the following items from our non-GAAP financial measures:

Foreign exchange effect on revenue. We translated revenue for the three and nine months ended September 30, 2019 using the prior year's monthly exchange rates for our settlement or billing currencies other than the U.S. dollar, which we believe is a useful metric that facilitates comparison to our historical performance.

Purchases of property and equipment, net; Principal payments on finance leases. We subtract both net purchases of property and equipment and principal payments on finance leases in our calculation of free cash flow because we believe that these two items collectively represent the amount of property and equipment we need to procure to support our business, regardless of whether we procure such property or equipment with a finance lease. We believe that this methodology can provide useful supplemental information to help investors better understand underlying trends in our business. Free cash flow is not intended to represent our residual cash flow available for discretionary expenditures.

For more information on our non-GAAP financial measures and a reconciliation of GAAP to non-GAAP measures, please see the "Reconciliation of GAAP to Non-GAAP Results" table in this press release.


                                                                                                              
        
                FACEBOOK, INC.


                                                                                                          
     
        CONDENSED CONSOLIDATED STATEMENTS OF INCOME


                                                                                                          
     
        (In millions, except for per share amounts)


                                                                                                               
        
                (Unaudited)




                                                                                                                                                                 Three Months Ended                        Nine Months Ended
                                                                                                                                                      September 30,                          September 30,


                                                                                                                                               2019                              2018       2019                              2018

                                                                                                                                                                                                                            ---


     
                Revenue                                                                                                                            $
              17,652                          $
              13,727               $
        49,615  $
        38,924



     
                Costs and expenses:



     Cost of revenue                                                                                                                         3,155                                   2,418                                 9,279          6,559



     Research and development                                                                                                                3,548                                   2,657                                 9,722          7,418



     Marketing and sales                                                                                                                     2,416                                   1,928                                 6,850          5,379



     General and administrative                                                                                                              1,348                                     943                                 8,636          2,475




     Total costs and expenses                                                                                                               10,467                                   7,946                                34,487         21,831




     
                Income from operations                                                                                                     7,185                                   5,781                                15,128         17,093



     Interest and other income, net                                                                                                            144                                     131                                   515            297




     Income before provision for income taxes                                                                                                7,329                                   5,912                                15,643         17,390



     Provision for income taxes                                                                                                              1,238                                     775                                 4,507          2,160




     
                Net income                                                                                                                          $
              6,091                           $
              5,137               $
        11,136  $
        15,230




     Less: Net income attributable to participating securities                                                                                   -                                                                                       (1)




     
                Net income attributable to Class A and Class B common stockholders                                                                  $
              6,091                           $
              5,137               $
        11,136  $
        15,229




     
                Earnings per share attributable to Class A and Class B common stockholders:



     Basic                                                                                                                                             $
              2.13                            $
              1.78                 $
        3.90    $
        5.26




     Diluted                                                                                                                                           $
              2.12                            $
              1.76                 $
        3.87    $
        5.20




     
                Weighted-average shares used to compute earnings per share attributable to Class A and



     
                Class B common stockholders:



     Basic                                                                                                                                   2,854                                   2,885                                 2,855          2,895




     Diluted                                                                                                                                 2,874                                   2,913                                 2,875          2,931




     
                Share-based compensation expense included in costs and expenses:



     Cost of revenue                                                                                                                                     $
              91                              $
              72                  $
        287     $
        202



     Research and development                                                                                                                  907                                     748                                 2,557          2,347



     Marketing and sales                                                                                                                       148                                     133                                   421            380



     General and administrative                                                                                                                103                                      87                                   297            251




     Total share-based compensation expense                                                                                                           $
              1,249                           $
              1,040                $
        3,562   $
        3,180


                                                                                                              
              
                FACEBOOK, INC.


                                                                                                   
              
                CONDENSED CONSOLIDATED BALANCE SHEETS


                                                                                                               
              
                (In millions)


                                                                                                                
              
                (Unaudited)




                                                                                                                                                                 September 30,              December 31,
                                                                                                                                                                          2019                       2018




     
                Assets



     Current assets:


                                                              
     Cash and cash equivalents                                                                                      $
        15,979                                $
        10,019


                                                              
     Marketable securities                                                                                   36,290                            31,095


                                                                Accounts receivable, net of allowances of $301 and $229 as of September
                                                                 30, 2019 and


                                                              
     December 31, 2018, respectively                                                                          7,673                             7,587


                                                              
     Prepaid expenses and other current assets                                                                2,137                             1,779



                                                              
     Total current assets                                                                                    62,079                            50,480



     Property and equipment, net                                                                                                32,284                                                            24,683



     Operating lease right-of-use assets, net                                                                                    8,403



     Intangible assets, net                                                                                                        853                                                             1,294



     Goodwill                                                                                                                   18,338                                                            18,301



     Other assets                                                                                                                2,461                                                             2,576




     
                Total assets                                                                                                                             $
             124,418                                   $
     97,334






     
                Liabilities and stockholders' equity



     Current liabilities:


                                                              
     Accounts payable                                                                                                  $
        860                                   $
        820


                                                              
     Partners payable                                                                                           590                               541


                                                              
     Operating lease liabilities, current                                                                       776


                                                              
     Accrued expenses and other current liabilities                                                          10,877                             5,509


                                                              
     Deferred revenue and deposits                                                                              225                               147



                                                              
     Total current liabilities                                                                               13,328                             7,017



     Operating lease liabilities, non-current                                                                                    8,356



     Other liabilities                                                                                                           8,735                                                             6,190



                                                              
     Total liabilities                                                                                       30,419                            13,207



     Commitments and contingencies



     Stockholders' equity:


                                                              
     Common stock and additional paid-in capital                                                             45,059                            42,906


                                                              
     Accumulated other comprehensive loss                                                                     (849)                            (760)


                                                              
     Retained earnings                                                                                       49,789                            41,981



                                                              
     Total stockholders' equity                                                                              93,999                            84,127




     
                Total liabilities and stockholders' equity                                                                                               $
             124,418                                   $
     97,334


                                                                                                      
          
                FACEBOOK, INC.


                                                                                                  
     
        CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


                                                                                                      
          
                (In millions)


                                                                                                       
          
                (Unaudited)




                                                                                                                                                Three Months Ended                              Nine Months Ended
                                                                                                                                     September 30,                                 September 30,


                                                                                                                              2019                              2018          2019                            2018

                                                                                                                                                                                                            ---


     
                Cash flows from operating activities



     Net income                                                                                                                      $
              6,091                            $
              5,137               $
         11,136  $
      15,230



     Adjustments to reconcile net income to net cash provided by operating activities:



        Depreciation and amortization                                                                                       1,416                                      1,107                               4,273           3,090



        Share-based compensation                                                                                            1,249                                      1,040                               3,562           3,180



        Deferred income taxes                                                                                                 175                                         30                                 358              83



        Other                                                                                                                  30                                          3                                  44              19



     Changes in assets and liabilities:



        Accounts receivable                                                                                                 (328)                                     (489)                              (264)          (328)



        Prepaid expenses and other current assets                                                                           (360)                                         8                               (527)          (889)



        Other assets                                                                                                            -                                      (40)                                 66            (99)



        Operating lease right-of-use assets                                                                               (1,179)                                                                      (2,890)



        Accounts payable                                                                                                       89                                         37                                   2              88



        Partners payable                                                                                                       39                                         63                                  59             116



        Accrued expenses and other current liabilities                                                                        457                                        350                               6,439           1,044



        Deferred revenue and deposits                                                                                          31                                         24                                  82              20



        Operating lease liabilities, non-current                                                                            1,276                                                                         2,914



        Other liabilities                                                                                                     321                                        226                               1,977             102




     
                Net cash provided by operating activities                                                                 9,307                                      7,496                              27,231          21,656



     
                Cash flows from investing activities



     Purchases of property and equipment, net                                                                             (3,532)                                   (3,343)                           (11,002)        (9,614)



     Purchases of marketable securities                                                                                   (7,397)                                   (4,375)                           (19,152)       (12,658)



     Sales of marketable securities                                                                                         2,946                                      2,492                               7,402          11,104



     Maturities of marketable securities                                                                                    2,943                                      1,053                               7,048           3,391



     Other investing activities, net                                                                                         (10)                                      (75)                              (124)          (141)




     
                Net cash used in investing activities                                                                   (5,050)                                   (4,248)                           (15,828)        (7,918)



     
                Cash flows from financing activities



     Taxes paid related to net share settlement of equity awards                                                            (591)                                     (905)                            (1,710)        (2,663)



     Repurchases of Class A common stock                                                                                  (1,148)                                   (4,256)                            (2,906)        (9,379)



     Principal payments on finance leases                                                                                   (144)                                                                        (411)



     Net change in overdraft in cash pooling entities                                                                       (141)                                                                        (260)



     Other financing activities, net                                                                                            5                                          3                                  14              11



     
                Net cash used in financing activities                                                                   (2,019)                                   (5,158)                            (5,273)       (12,031)




     Effect of exchange rate changes on cash, cash equivalents, and restricted cash                                         (156)                                      (14)                              (174)          (167)




     Net increase (decrease) in cash, cash equivalents, and restricted cash                                                 2,082                                    (1,924)                              5,956           1,540



     Cash, cash equivalents, and restricted cash at beginning of the period                                                13,998                                     11,668                              10,124           8,204




     
                Cash, cash equivalents, and restricted cash at end of the period                                                  $
              16,080                            $
              9,744               $
         16,080   $
      9,744






     
                Reconciliation of cash, cash equivalents, and restricted cash to the condensed



     
                consolidated balance sheets



     Cash and cash equivalents                                                                                                      $
              15,979                            $
              9,637               $
         15,979   $
      9,637



     Restricted cash, included in prepaid expenses and other current assets                                                     7                                          7                                   7               7



     Restricted cash, included in other assets                                                                                 94                                        100                                  94             100



     
                Total cash, cash equivalents, and restricted cash                                                                 $
              16,080                            $
              9,744               $
         16,080   $
      9,744


                                                                                   
          
                FACEBOOK, INC.


                                                                               
     
         CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


                                                                                    
          
                (In millions)


                                                                                     
          
                (Unaudited)




                                                                                                                   Three Months Ended                     Nine Months Ended
                                                                                                        September 30,                    September 30,


                                                                                                 2019                             2018       2019                             2018

                                                                                                                                                                            ---


     
                Supplemental cash flow data



     Cash paid during the period for:



     Interest                                                                                              $
              4              
           $                                      $
        9  
     $



     Income taxes, net                                                                                   $
              832                              $
             447              $
        2,528     $
      2,728



     Non-cash investing activities:



     Net change in prepaids and liabilities related to property and equipment                            $
              144                              $
             382               $
        (59)      $
      613



     Property and equipment in accounts payable and accrued liabilities                                $
              1,850                            $
             1,504              $
        1,850     $
      1,504


                                                                                    
       
         Reconciliation of GAAP to Non-GAAP Results


                                                                                      
       
           (In millions, except percentages)


                                                                                          
         
                (Unaudited)




                                                                                                                      Three Months Ended                          Nine Months Ended
                                                                                                             September 30,                             September 30,


                                                                                                      2019                               2018         2019                              2018




              GAAP revenue                                                                                  $
              17,652                             $
              13,727                         $
        49,615 $
     38,924



              Foreign exchange effect on 2019 revenue using 2018 rates                                297                                                               1,374




              Revenue excluding foreign exchange effect                                                     $
              17,949                                                              $
     50,989


    GAAP revenue year-over-year change %                                                    29
            %                                                       27
            %


    Revenue excluding foreign exchange effect year-over-year change %                       31
            %                                                       31
            %



              GAAP advertising revenue                                                                      $
              17,383                             $
              13,539                         $
        48,919 $
     38,373



              Foreign exchange effect on 2019 advertising revenue using 2018 rates                    295                                                               1,370




              Advertising revenue excluding foreign exchange effect                                         $
              17,678                                                              $
     50,289


    GAAP advertising revenue year-over-year change %                                        28
            %                                                       27
            %


    Advertising revenue excluding foreign exchange effect year-over-year change %           31
            %                                                       31
            %





              Net cash provided by operating activities                                                      $
              9,307                              $
              7,496                         $
        27,231 $
     21,656



              Purchases of property and equipment, net                                            (3,532)                                    (3,343)                            (11,002)                 (9,614)



              Principal payments on finance leases                                                  (144)                                                                          (411)




              Free cash flow                                                                                 $
              5,631                              $
              4,153                         $
        15,818 $
     12,042

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SOURCE Facebook