facebook q3 earnings

Quarterly Earnings SlidesQ3 2014

Non-GAAP MeasuresIn addition to U.S. GAAP financials, this presentation includes certain non-GAAP financial measures. Thesenon-GAAP measures are in addition to, not a substitute for or superior to, measures of financial performanceprepared in accordance with U.S. GAAP. A reconciliation of non-GAAP financial measures to the correspondingGAAP measures is provided in the appendix to this presentation.

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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 242152 161180 195 208 216

233 244 256

584 618665 699 728

757802

829 864

Q3'12 Q4'12 Q1'13 Q2'13 Q3'13 Q4'13 Q1'14 Q2'14 Q3'14

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Daily Active Users (DAUs)

DAUs / MAUsQ3'12 Q4'12 Q1'13 Q2'13 Q3’13 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

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Mobile Daily Active Users (Mobile DAUs)In Millions

329374

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


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 4231,007

1,0561,110

1,155 1,1891,228 1,276

1,317 1,350

Q3'12 Q4'12 Q1'13 Q2'13 Q3'13 Q4'13 Q1'14 Q2'14 Q3'14

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Monthly Active Users (MAUs)In Millions

Rest of World

Asia

Europe

US & Canada


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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


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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

RevenueIn Millions

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*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

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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

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Advertising Revenue by User Geography


$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

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Payments & Other Fees Revenue by User Geography


*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 performa 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 Facebook’s 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)

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Non-GAAP income from operations excludes share-based compensation expense, payroll tax expenses related to share-based compensation, and amortization of intangibles—see the Appendix for a reconciliation of this non-GAAP measure to GAAP income from operations.

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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 intangibles—see the Appendix for a reconciliation of this non-GAAP measure to GAAP operating margin.

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Effective Tax RateGAAP Effective Tax Rate

Non-GAAP Effective Tax Rate

Q1 Q2 Q3 Q4 Q1 Q2 Q3($ in millions) 2013 2013 2013 2013 2014 2014 2014GAAP 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 2014Non-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%

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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 intangibles—see 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)

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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 intangibles—see the Appendix for a reconciliation of this non-GAAP measure to GAAP diluted earnings per share.

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Capital InvestmentsIn 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

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Reconciliations

Income from Operations (in millions) Q1'13 Q2'13 Q3'13 Q4'13 Q1'14 Q2'14 Q3'14GAAP 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 Q3'14GAAP 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 Q3'14GAAP 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 Q3'14GAAP 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 Q3'14GAAP 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%

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Reconciliations (continued)

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Reconciliations (continued)

Free Cash Flow (in millions) Q1'13 Q2'13 Q3'13 Q4'13 Q1'14 Q2'14 Q3'14Net 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 DataThe 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.

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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 becausemobile 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 user’s IP address and self-disclosed location. These factors may not always accuratelyreflect the user’s 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 user’s actual location. The methodologies used to measure user metrics may also be susceptible to algorithm or other technical errors. For example, in early June 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. Forexample, 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.

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