Despite all of the recent buzz over a supposed death of Facebook in the near future, the California-based social media titan has beat market estimates and is boasting impressive profit margins. Although it may not be growing as quickly as it has in the past, Facebook’s recent earnings report suggests that the company is still in very good shape with stocks hitting all time highs.
Following a surprisingly strong earnings report, shares in Facebook surged. Reaching spikes of up to 17 percent at times, the company could be poised to add some $20 billion of share worth to its original market capitalization. Whether this leap in value will last is yet to be seen, but as of now, investors seem to have renewed confidence in the company as a whole with dozens of brokerages raising their outlook on Facebook.
There are several significant factors that contributed to the company’s impressive profit margins. First of all, CEO Mark Zuckerberg and his team were successful in integrating a winning advertising strategy with an expanding usage of the site on smart phones and tablets. In total, Facebook says that some 53 percent of its fourth-quarter advertising revenue came from people accessing the site with their mobile devices.
Also, the company’s already massive user base was able to grow. Since this time last year, 16% more people have signed onto Facebook bringing the total number of users to 1.2 billion. For perspective, that indicates that approximately one out of every six people in the world use the site, or about 50 percent of all people who have access to the internet use Facebook.
All of these factors contributed to why Facebook’s profits beat market expectations. Their revenue of $$1.585 billion from the same quarter last year surged by a comfy billion dollars to $2.585 in most recent report. The best estimates assumed that Facebook would rake in approximately $255 million dollars less than they actually did.
This is a stark contrast to the company’s original public offering. Due to a slew of technical glitches, Facebook’s shares plummeted in their opening hours, setting the company behind its goals by incredible margins. As a result of these issues, several lawsuits were filed too. Despite the rocky start though, the social media heavyweight was able to bounce back to reasonable levels, and with the latest report, exceed all expectations.
However, the picture is not perfectly rosy for the company. Although the total amount of users of the site increased, the amount it increased by suggests a slow down in growth. Also, with Twitter set to continue a very steady growth, it seems that Facebook’s lofty profits may not last forever.
Furthermore, one of the key demographics for social media is teenagers. Notably, it is a demographic that Facebook has been lagging behind in. The company has admitted this in saying that young adults are simply not as engaged on the site as they have been in the past.
Nevertheless, with Facebook’s profits so strongly above market estimates, there is little to fear for the company as a whole. Though it may be the case that some growth is slowing, the company is still able to beat the odds and sell a multi-billion dollar user-friendly product that is only paid for with eyes, not with wallets.
By Brett Byers-Lane