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Facebook 2012 2Q financial analysis

Facebook 2Q saw large amount of expenses, which lead to -0,6 bn.$ Net earnings before depreciation. Revenue shows further growth by 45% if compared to 2012 2Q and by 12% if compared to previous 1Q, which is a good sign. Main source of loss was 1,56 bn.$ of operational expenses. Out of which 0,7 bn.$ was in Research and development. This is basically where Facebook is spending its IPO gathered 6,7 bn.$. Facebook like other IT companies has issue of “expenses first, revenue later” so it is possible that this will increase companies revenue in the future. For how much its hard to speculate, but revenue do show growth as can be seen from graph below. Anyway it is hard to tell if these expenses will lead to profit in the future, of just can be wasted. Another thing is that cost of revenue is increasing faster then revenue growth, which must be watched closely.

Growth is defiantly driven by user number increase which continue to grow almost in a straight line, about by +6% compared to Q1 and reached almost 1 bn. Mobile active users. This growth will come to a halt one way or another, because of market fill-up effect which can be seen in US/Canada figures where growth is only from 183 m. to 186 m. or by just +1,6%. Mobile user growth shows even larger increase from 488 m. to 543 m. of increase by +11%. In general companies results hard to evaluate and bases more on expectations of the future growth.

Companies balance structure is quite good with strong equity base which after IPO has even increased further up to 89%. Most of IPO 6,7 bn.$ was not spent, but ~6 bn.$ went to short term investments. ~0,9 bn.$ went to property and equipment purchase, 0,6 bn.$ went to acquisition of patents from IBM. Also 1,1 bn.$ of these funds will be used for Instagram and face.com. So company id not spent all of their money, but sure have places were to put them. Liquidity has gone up to 12. High  equity lead to other issue – low return on equity, so company need to show ability to generate more revenue and profit for increased equity. In general companies balance structure is strong. 

 

Share value:

Equity / share 13,3 bn.$ 2,142 bn. 6,2 $/sh.
Market value 19,1 $ +12,8 $ 8,5 years
Year Net income before Depreciation 1,5 bn.$ +0,7 $/sh. 3,7%

Companies share basic value is ~6,2$. Present market value of the share is 19$ or 12,8$ more then its basic value. Net income before Depreciation is hard to evaluate due to increase of expenses after IPO, but previously 1,5 bn.$/year level can be taken as a base for calculation, that leads to 8,5 years, which is quite a reasonable number taking into consideration that present increase of expenses may lead to visible growth in the future, but that is only an expectation. This figure is a lot better then 21 years at 38$ IPO time, due to share losing 1/2 of its value since then. Share profitability (Share market price/Net income before Depreciation) is just 3,7% which is still a very low level if using base 1,5 bn.$ Net income. It is due to companies IPO that largely increased its equity, but company does not yet showed its ability to generate more profit by now. In general share value is more reasonable then previously, but companies evaluation is mainly based on expectations, not actual figures.

Analysis source: Facebook 2012 2Q financial report

Previous analysis: Facebook 2012 1Q (IPO) financial analysis

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3 Responses to Facebook 2012 2Q financial analysis

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