Facebook (FB) delivered another solid result in Q2 2014 as far as revenue and earnings growth. It continues to provide positive validation on my decision to include it within my growth portfolio and is generally performing in line with my core investment thesis on the stock.
Market Opportunity
The central thesis behind my decision to include Facebook within my growth portfolio is that Facebook helps brands get granular awareness of specific users moving across multiple devices. Importantly, Facebook helps brands do this with a single media buy, and see the results more effectively than if such a buy is spread across a number of different publishers and intermediate agencies.
Revenue and profit growth
Revenue came in at $2.9B in Q2 2014, a more than 60% improvement from Q2 2013. Revenue trumped most analyst expectations. Facebook also reported better than expected earnings with profit of $0.30 per share, exceeding most analyst expectations.
Mobile Advertising
The theme that dominated Facebook's earnings for Q2 was strength in mobile advertising, a theme that has been evident for the last few quarters. Mobile revenues more than doubled year over year and accounted for almost 62% of Facebook's total revenue. Equally impressive, Mobile monthly active users (MAU) increased 31.0% year over year to 1.07 billion. Facebook's also had solid overall increase in MAU, with active users up to 14.0% year over year to 1.32 billion. Mobile users now represent a substantial portion of Facebook's total monthly active users.
Facebook Ad Network (FAN)
Facebook recently started a new business unit which facilitates mobile advertising on 3rd party publisher applications, in a manner similar to what Google (GOOG) adsense does for publishers today. This new initiative will allow the management of advertising, payment routing and ad targeting on behalf of developers. I'm looking for evidence of any traction that FAN gets in upcoming quarters as another core growth driver for Facebook revenues.
Conclusions and Key Takeaways
Facebook has some strong growth drivers in its core business which will continue to propel revenue and earnings higher. Brand interest in having greater control over advertising spending and campaign targeting will see a continued shift away to platforms with direct access to specific user segments, of which Facebook is one.
Disclosure: The author is long FB. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.