Quarterly Earnings Slides

Q3 2014
Non-GAAP Measures
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.
2
132 135 139 142 144 147 150 152 155
160
169
179
182
188
195
203
206
212
141
153
167
181
189
200
216
228
242
152
161
180
195
208
216
233
244
256
584
618
665
699
728
757
802
829
864
Q3'12 Q4'12 Q1'13 Q2'13 Q3'13 Q4'13 Q1'14 Q2'14 Q3'14
3
Daily Active Users (DAUs)
DAUs / MAUs
Q3'12 Q4'12 Q1'13 Q2'13 Q313 Q4'13 Q1'14 Q2'14 Q3'14
58% 59% 60% 61% 61% 62% 63% 63% 64%
Rest of World
Asia
Europe
US & Canada
Please see Facebook's most recent quarterly or annual report filed with the SEC for definitions of user activity used to determine the number of our DAUs, mobile
DAUs, MAUs, and mobile MAUs. The number of DAUs, mobile DAUs, MAUs, and mobile MAUs do not include Instagram users unless they would otherwise qualify
as such users, respectively, based on their other activities on Facebook.
In Millions
4
Mobile Daily Active Users (Mobile DAUs)
In Millions
329
374
425
469
507
556
609
654
703
Q3'12 Q4'12 Q1'13 Q2'13 Q3'13 Q4'13 Q1'14 Q2'14 Q3'14
Please see Facebook's most recent quarterly or annual report filed with the SEC for definitions of user activity used to determine the number of our DAUs, mobile
DAUs, MAUs, and mobile MAUs. The number of DAUs, mobile DAUs, MAUs, and mobile MAUs do not include Instagram users unless they would otherwise qualify
as such users, respectively, based on their other activities on Facebook.
189 193 195 198 199 201 202 204 206
253
261
269
272 276
282
289 292 296
277
298
319
339
351
368
390
410
426
288
304
327
346
362
376
395
411
423
1,007
1,056
1,110
1,155
1,189
1,228
1,276
1,317
1,350
Q3'12 Q4'12 Q1'13 Q2'13 Q3'13 Q4'13 Q1'14 Q2'14 Q3'14
5
Monthly Active Users (MAUs)
In Millions
Rest of World
Asia
Europe
US & Canada
Please see Facebook's most recent quarterly or annual report filed with the SEC for definitions of user activity used to determine the number of our DAUs, mobile
DAUs, MAUs, and mobile MAUs. The number of DAUs, mobile DAUs, MAUs, and mobile MAUs do not include Instagram users unless they would otherwise qualify
as such users, respectively, based on their other activities on Facebook.
6
Mobile Monthly Active Users (Mobile MAUs)
In Millions
604
680
751
819
874
945
1,008
1,070
1,124
Q3'12 Q4'12 Q1'13 Q2'13 Q3'13 Q4'13 Q1'14 Q2'14 Q3'14
Please see Facebook's most recent quarterly or annual report filed with the SEC for definitions of user activity used to determine the number of our DAUs, mobile
DAUs, MAUs, and mobile MAUs. The number of DAUs, mobile DAUs, MAUs, and mobile MAUs do not include Instagram users unless they would otherwise qualify
as such users, respectively, based on their other activities on Facebook.
7
Mobile-Only Monthly Active Users (Mobile-Only MAUs)
In Millions
254
296
341
399
456
Q3'13 Q4'13 Q1'14 Q2'14 Q3'14
Mobile-only MAUs are defined as users who accessed Facebook solely through mobile apps or mobile versions of our website, or used our Messenger app, in the
last 30 days of the given quarter. The number of mobile-only MAUs do not include Instagram users unless they would otherwise qualify as such users based on
their other activities on Facebook.
$1,086
$1,329
$1,245
$1,599
$1,798
$2,344
$2,265
$2,676
$2,957
$176
$256
$213
$214
$218
$241
$237
$234
$246
$1,262
$1,585
$1,458
$1,813
$2,016
$2,585
$2,502
$2,910
$3,203
Q3'12 Q4'12 Q1'13 Q2'13 Q3'13 Q4'13 Q1'14 Q2'14 Q3'14
Payments and other fees
Advertising
Revenue
In Millions
8
*In the fourth quarter of 2012 we recognized revenue from four months of Payments transactions for accounting reasons detailed on pages 47 and 48 of our
Form 10-K filed on February 1, 2013.
*
$637
$780
$679
$848
$962
$1,206
$1,179
$1,308
$1,514
$341
$440
$423
$505
$538
$727
$698
$824
$844
$154
$198
$197
$247
$278
$341
$354
$431
$492
$130
$167
$159
$213
$238
$311
$271
$347
$353
$1,262
$1,585
$1,458
$1,813
$2,016
$2,585
$2,502
$2,910
$3,203
Q3'12 Q4'12 Q1'13 Q2'13 Q3'13 Q4'13 Q1'14 Q2'14 Q3'14
Rest of World
Asia
Europe
US & Canada
9
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 marketer or developer.
In Millions
Rest of World
Asia
Europe
US & Canada
10
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 marketer or developer.
$538
$631
$552
$721
$832
$1,068
$1,039
$1,175
$1,362 $295
$374
$367
$451
$482
$658
$631
$757
$783
$133
$168
$176
$225
$255
$318
$333
$408
$469
$120
$156
$150
$202
$229
$300
$262
$336
$343
$1,086
$1,329
$1,245
$1,599
$1,798
$2,344
$2,265
$2,676
$2,957
Q3'12 Q4'12 Q1'13 Q2'13 Q3'13 Q4'13 Q1'14 Q2'14 Q3'14
In Millions
Rest of World
Asia
Europe
US & Canada
$99
$149
$127 $127
$130
$138 $140
$133
$152
$46
$66
$56
$54
$56
$69 $67
$67
$61
$21
$30
$21
$22
$23
$23 $21
$23
$23
$10
$11
$9
$11
$9
$11
$9
$11
$10
$176
$256
$213
$214
$218
$241
$237
$234
$246
Q3'12 Q4'12 Q1'13 Q2'13 Q3'13 Q4'13 Q1'14 Q2'14 Q3'14
11
Payments & Other Fees 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 marketer or developer.
*In the fourth quarter of 2012 we recognized revenue from four months of Payments transactions for accounting reasons detailed on pages 47
and 48 of our Form 10-K filed on February 1, 2013.
In Millions
*
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Average Revenue per User (ARPU)
$1.76
$2.36
$2.21
$2.61
$2.66
$0.20
$0.25
$0.23
$0.23
$0.21
$1.96
$2.61
$2.44
$2.84
$2.87
Q3'13 Q4'13 Q1'14 Q2'14 Q3'14
Europe
$0.74
$0.88 $0.88
$1.02
$1.12
$0.07
$0.06 $0.06
$0.06
$0.06
$0.81
$0.95 $0.93
$1.08
$1.18
Q3'13 Q4'13 Q1'14 Q2'14 Q3'14
Asia
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 marketer or developer. Please see Facebooks most recent quarterly or annual report filed with the
SEC for the definition of ARPU.
$0.65
$0.81
$0.68
$0.83 $0.82
$0.03
$0.03
$0.02
$0.03
$0.02
$0.67
$0.84
$0.70
$0.86
$0.85
Q3'13 Q4'13 Q1'14 Q2'14 Q3'14
Rest of World
$1.53
$1.94
$1.81
$2.06
$2.22
$0.19
$0.20
$0.19
$0.18
$0.18
$1.72
$2.14
$2.00
$2.24
$2.40
Q3'13 Q4'13 Q1'14 Q2'14 Q3'14
Worldwide
$4.19
$5.34
$5.16
$5.79
$6.64
$0.65
$0.69
$0.69
$0.66
$0.74
$4.85
$6.03
$5.85
$6.44
$7.39
Q3'13 Q4'13 Q1'14 Q2'14 Q3'14
US & Canada
Payments
Advertising
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Expenses as a % of Revenue
10% 10%
11%
10%
10%
12%
11%
13%
12%
12%
Q3'13 Q4'13 Q1'14 Q2'14 Q3'14
Marketing & Sales
9%
9%
10%
9%
11%
9%
7%
8%
8%
8%
18%
16%
18%
17%
19%
Q3'13 Q4'13 Q1'14 Q2'14 Q3'14
Research & Development
6% 5%
5% 5%
6%
8%
10%
7%
7%
8%
Q3'13 Q4'13 Q1'14 Q2'14 Q3'14
General & Administrative
Share-based compensation + Payroll tax related to share-based compensation All other expenses
24%
18%
18%
15%
16%
25%
19%
18%
16%
18%
Q3'13 Q4'13 Q1'14 Q2'14 Q3'14
Cost of Revenue
Amortization of intangibles
Income from Operations
$373
$562
$736
$1,133
$1,075
$1,390 $1,397
Q1'13 Q2'13 Q3'13 Q4'13 Q1'14 Q2'14 Q3'14
GAAP Income from Operations (In Millions)
$596
$830
$1,024
$1,498
$1,415
$1,753
$1,820
Q1'13 Q2'13 Q3'13 Q4'13 Q1'14 Q2'14 Q3'14
Non-GAAP Income from Operations (In Millions)
14
Non-GAAP income from operations excludes share-based compensation expense, payroll tax expenses related to share-based compensation, and amortization of
intangiblessee the Appendix for a reconciliation of this non-GAAP measure to GAAP income from operations.
15
Operating Margin
41%
46%
51%
58%
57%
60%
57%
Q1'13 Q2'13 Q3'13 Q4'13 Q1'14 Q2'14 Q3'14
Non-GAAP Operating Margin
26%
31%
37%
44%
43%
48%
44%
Q1'13 Q2'13 Q3'13 Q4'13 Q1'14 Q2'14 Q3'14
GAAP Operating Margin
Non-GAAP operating margin excludes share-based compensation expense, payroll tax expenses related to share-based compensation, and amortization of
intangiblessee the Appendix for a reconciliation of this non-GAAP measure to GAAP operating margin.
16
Effective Tax Rate
GAAP Effective Tax Rate
Non-GAAP Effective Tax Rate
Q1 Q2 Q3 Q4 Q1 Q2 Q3
($ in millions) 2013 2013 2013 2013 2014 2014 2014
GAAP income before provision for income taxes 353 $ 545 $ 726 $ 1,130 $ 1,075 $ 1,386 $ 1,336 $
GAAP provision for income taxes 134 212 301 607 433 595 530
Effective Tax Rate 38% 39% 41% 54% 40% 43% 40%
Q1 Q2 Q3 Q4 Q1 Q2 Q3
($ in millions) 2013 2013 2013 2013 2014 2014 2014
Non-GAAP income before provision for income taxes 576 813 1,014 1,495 1,415 1,749 1,759
Non-GAAP provision for income taxes 241 294 348 681 489 627 610
Effective Tax Rate 42% 36% 34% 46% 35% 36% 35%
17
Net Income
$219
$333
$425
$523
$642
$791 $806
Q1'13 Q2'13 Q3'13 Q4'13 Q1'14 Q2'14 Q3'14
Non-GAAP net income excludes share-based compensation expense, payroll tax expenses related to share-based compensation, related income
tax adjustments, and amortization of intangiblessee the Appendix for a reconciliation of this non-GAAP measure to GAAP net income.
$335
$519
$666
$814
$926
$1,121
$1,149
Q1'13 Q2'13 Q3'13 Q4'13 Q1'14 Q2'14 Q3'14
GAAP Net Income (In Millions)
Non-GAAP Net Income (In Millions)
18
Diluted Earnings Per Share
$0.09
$0.13
$0.17
$0.20
$0.25
$0.30 $0.30
Q1'13 Q2'13 Q3'13 Q4'13 Q1'14 Q2'14 Q3'14
$0.13
$0.21
$0.27
$0.32
$0.35
$0.43 $0.43
Q1'13 Q2'13 Q3'13 Q4'13 Q1'14 Q2'14 Q3'14
GAAP Diluted Earnings Per Share
Non-GAAP Diluted Earnings Per Share
Non-GAAP diluted earnings per share excludes share-based compensation expense, payroll tax expenses related to share-based compensation,
related income tax adjustments, and amortization of intangiblessee the Appendix for a reconciliation of this non-GAAP measure to GAAP
diluted earnings per share.
19
Capital Investments
In Millions
Property and equipment acquired
under capital leases
Purchases of property
and equipment
$606
$1,235
$1,362
$473
$340
$1,079
$1,575
$1,373
2011 2012 2013
Annual
$879
$1,314
$890
$1,314
YTD Q3'13 YTD Q3'14
Quarterly
Appendix
21
Reconciliations
Income from Operations (in millions) Q1'13 Q2'13 Q3'13 Q4'13 Q1'14 Q2'14 Q3'14
GAAP income from operations 373 $ 562 $ 736 $ 1,133 $ 1,075 $ 1,390 $ 1,397 $
Share-based compensation expense 170 224 239 273 274 314 353
Payroll tax expenses related to share-based compensation 20 8 12 53 25 8 11
Amortization of intangible assets 33 36 37 39 41 41 59
Non-GAAP income from operations 596 $ 830 $ 1,024 $ 1,498 $ 1,415 $ 1,753 $ 1,820 $
Operating Margin Q1'13 Q2'13 Q3'13 Q4'13 Q1'14 Q2'14 Q3'14
GAAP operating margin 26% 31% 37% 44% 43% 48% 44%
Share-based compensation expense 12% 12% 12% 11% 11% 11% 11%
Payroll tax expenses related to share-based compensation 1% 0% 1% 2% 1% 0% 0%
Amortization of intangible assets 2% 2% 2% 2% 2% 1% 2%
Non-GAAP operating margin 41% 46% 51% 58% 57% 60% 57%
Net Income (in millions) Q1'13 Q2'13 Q3'13 Q4'13 Q1'14 Q2'14 Q3'14
GAAP net income 219 $ 333 $ 425 $ 523 $ 642 $ 791 $ 806 $
Share-based compensation expense 170 224 239 273 274 314 353
Payroll tax expenses related to share-based compensation 20 8 12 53 25 8 11
Amortization of intangible assets 33 36 37 39 41 41 59
Income tax adjustments (107) (82) (47) (74) (56) (33) (80)
Non-GAAP net income 335 $ 519 $ 666 $ 814 $ 926 $ 1,121 $ 1,149 $
Diluted Earnings Per Share Q1'13 Q2'13 Q3'13 Q4'13 Q1'14 Q2'14 Q3'14
GAAP diluted earnings per share 0.09 $ 0.13 $ 0.17 $ 0.20 $ 0.25 $ 0.30 $ 0.30 $
Non-GAAP adjustments to net income 0.04 0.08 0.10 0.12 0.10 0.13 0.13
Non-GAAP adjustments to diluted shares - - - - - - -
Non-GAAP diluted earnings per share 0.13 $ 0.21 $ 0.27 $ 0.32 $ 0.35 $ 0.43 $ 0.43 $
Effective Tax Rate (in millions) Q1'13 Q2'13 Q3'13 Q4'13 Q1'14 Q2'14 Q3'14
GAAP income before provision for income taxes 353 $ 545 $ 726 $ 1,130 $ 1,075 $ 1,386 $ 1,336 $
GAAP provision for income taxes 134 212 301 607 433 595 530
GAAP effective tax rate 38% 39% 41% 54% 40% 43% 40%
GAAP income before provision for income taxes 353 $ 545 $ 726 $ 1,130 $ 1,075 $ 1,386 $ 1,336 $
Share-based compensation and related payroll tax expenses 190 232 251 326 299 322 364
Amortization of intangibles 33 36 37 39 41 41 59
Non-GAAP income before provision for income taxes 576 $ 813 $ 1,014 $ 1,495 $ 1,415 $ 1,749 $ 1,759 $
Non-GAAP provision for income taxes 241 294 348 681 489 627 610
Non-GAAP effective tax rate 42% 36% 34% 46% 35% 36% 35%
22
Reconciliations (continued)
23
Reconciliations (continued)
Free Cash Flow (in millions) Q1'13 Q2'13 Q3'13 Q4'13 Q1'14 Q2'14 Q3'14
Net cash provided by operating activities 719 $ 1,322 $ 950 $ 1,231 $ 1,285 $ 1,341 $ 1,248 $
Purchases of property and equipment 327 268 284 483 363 469 482
Property and equpiment acquired under capital leases 11 - - - - - -
Free Cash Flow 381 $ 1,054 $ 666 $ 748 $ 922 $ 872 $ 766 $
Limitations of Key Metrics and Other Data
The numbers for our key metrics, which include our daily active users (DAUs), mobile DAUs, monthly active users (MAUs),
mobile MAUs, and average revenue per user (ARPU), as well as certain other metrics such as mobile-only MAUs, are
calculated using internal company data based on the activity of user accounts. 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 between approximately 4.3% and
7.9% of our worldwide MAUs in 2013. 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. In 2013, for example, we estimate user-misclassified accounts may
have represented between approximately 0.8% and 2.1% of our worldwide MAUs and undesirable accounts may have
represented between approximately 0.4% and 1.2% 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 the United Kingdom and higher in
developing markets such as India 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. Due to inherent variability in such estimates at particular dates of
measurement, we disclose these estimates as a range over a recent period.
24
Limitations of Key Metrics and Other Data (cont.)
Our data limitations may affect our understanding of certain details of our business. For example, while user-provided data indicates a
decline in usage among younger users, this age data is unreliable because a disproportionate number of our younger users register
with an inaccurate age. Accordingly, our understanding of usage by age group may not be complete.
Some of our metrics have also been 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 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 users IP address and self-disclosed location. These factors may not always accurately
reflect the users 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 users actual location. The methodologies used to measure user metrics may also
be susceptible to algorithm or other technical errors. For example, in early J une 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 period ended March 31,
2012. While this issue did not affect our overall worldwide DAU and MAU numbers, it did affect our attribution of users across different
geographic regions. We estimate that the number of MAUs as of March 31, 2012 for the United States & Canada region was overstated
as a result of the error by approximately 3% and this overstatement was offset by understatements in other regions. The number of such
users for the period ended March 31, 2012 presented herein reflect the reclassification to more correctly attribute users by geographic
region. Our estimates for revenue by user location are also affected by these factors.
We regularly review our processes for calculating these metrics, and from time to time we may make adjustments to improve their
accuracy. These adjustments may result in the recalculation of our historical metrics, which are immaterial unless otherwise noted. 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.
The numbers of DAUs, mobile DAUs, MAUs, mobile MAUs, and mobile-only MAUs represented in these slides, as well as ARPU, do
not include users of Instagram unless they would otherwise qualify as such users, respectively, based on their other activities on
Facebook.
25