Facebook Reports Third Quarter 2018 Results
 
MENLO PARK, Calif. – October 30, 2018 – Facebook, Inc. (Nasdaq: FB) today reported financial results for the quarter ended September 30, 2018.

"Our community and business continue to grow quickly, and now more than 2 billion people use at least one of our services every day," said Mark Zuckerberg, Facebook founder and CEO. "We're building the best services for private messaging and stories, and there are huge opportunities ahead in video and commerce as well."

Third Quarter 2018 Financial Highlights

 
Three Months Ended September 30,
 
Year-over-Year % Change
In millions, except percentages and per share amounts
2018
 
2017
 
Revenue:
 
 
 
 
 
   Advertising
$
13,539

 
$
10,142

 
33
%
   Payments and other fees
188

 
186

 
1
%
Total revenue
13,727

 
10,328

 
33
%
Total costs and expenses
7,946

 
5,206

 
53
%
Income from operations
$
5,781

 
$
5,122

 
13
%
Operating margin
42
%
 
50
%
 

Provision for income taxes
$
775

 
 
 

Effective tax rate
13
%
 


 


Net income
$
5,137

 
$
4,707

 
9
%
Diluted Earnings per Share (EPS)
$
1.76

 
$
1.59

 
11
%

Third Quarter 2018 Operational and Other Financial Highlights

Daily active users (DAUs) – DAUs were 1.49 billion on average for September 2018, an increase of 9% year-over-year.
Monthly active users (MAUs) – MAUs were 2.27 billion as of September 30, 2018, an increase of 10% year-over-year.
Mobile advertising revenue – Mobile advertising revenue represented approximately 92% of advertising revenue for the third quarter of 2018, up from approximately 88% of advertising revenue in the third quarter of 2017.
Effective Tax Rate – Our effective tax rate was 13%, which was lower than expected primarily due to the withdrawal in August of an appellate court ruling in the case of Altera Corp. v. Commissioner.
Capital expenditures – Capital expenditures for the third quarter of 2018 were $3.34 billion.
Cash and cash equivalents and marketable securities – Cash and cash equivalents and marketable securities were $41.21 billion at the end of the third quarter of 2018.
Headcount – Headcount was 33,606 as of September 30, 2018, an increase of 45% year-over-year.

In addition, we estimate that more than 2.6 billion people now use Facebook, WhatsApp, Instagram, or Messenger (our "Family" of services) each month, and more than 2 billion people use at least one of our Family of services every day on average.

1



Webcast and Conference Call Information
 
Facebook will host a conference call to discuss the results at 2 p.m. PT / 5 p.m. ET today. The live webcast of Facebook's earnings conference call can be accessed at investor.fb.com, along with the earnings press release, financial tables, and slide presentation. Facebook uses the investor.fb.com and newsroom.fb.com websites as well as Mark Zuckerberg's Facebook Page (https://www.facebook.com/zuck) as means of disclosing material non-public information and for complying with its disclosure obligations under Regulation FD.

Following the call, a replay will be available at the same website. A telephonic replay will be available for one week following the conference call at +1 (404) 537-3406 or +1 (855) 859-2056, conference ID 5638138.

Transcripts of conference calls with publishing equity research analysts held today will also be posted to the investor.fb.com website.

About Facebook

Founded in 2004, Facebook’s mission is to give people the power to build community and bring the world closer together. People use Facebook to stay connected with friends and family, to discover what’s going on in the world, and to share and express what matters to them.

Contacts

Investors:
Deborah Crawford
investor@fb.com / investor.fb.com

Press:
Vanessa Chan
press@fb.com / newsroom.fb.com

2



Forward Looking Statements

This press release contains forward-looking statements regarding our future business expectations, which are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are only predictions and may differ materially from actual results due to a variety of factors including: our ability to retain or increase users and engagement levels; our reliance on advertising revenue; our dependency on mobile operating systems, networks, and standards that we do not control; risks associated with new products and changes to existing products as well as other new business initiatives; our emphasis on user growth and engagement and the user experience over short-term financial results; maintaining and enhancing our brand and reputation; our ongoing safety, security, and content review efforts; competition; litigation and government inquiries; privacy and regulatory concerns; risks associated with acquisitions; security breaches; and our ability to manage growth and geographically-dispersed operations. These and other potential risks and uncertainties that could cause actual results to differ from the results predicted are more fully detailed under the caption "Risk Factors" in our Quarterly Report on Form 10-Q filed with the SEC on July 26, 2018, which is available on our Investor Relations website at investor.fb.com and on the SEC website at www.sec.gov. Additional information will also be set forth in our Quarterly Report on Form 10-Q for the quarter ended September 30, 2018. In addition, please note that the date of this press release is October 30, 2018, and any forward-looking statements contained herein are based on assumptions that we believe to be reasonable as of this date. We undertake no obligation to update these statements as a result of new information or future events.

Non-GAAP Financial Measures

To supplement our condensed consolidated financial statements, which are prepared and presented in accordance with generally accepted accounting principles in the United States (GAAP), we use the following non-GAAP financial measures: revenue excluding foreign exchange effect, advertising revenue excluding foreign exchange effect and free cash flow. The presentation of these financial measures is not intended to be considered in isolation or as a substitute for, or superior to, financial information prepared and presented in accordance with GAAP. Investors are cautioned that there are material limitations associated with the use of non-GAAP financial measures as an analytical tool. In addition, these measures may be different from non-GAAP financial measures used by other companies, limiting their usefulness for comparison purposes. We compensate for these limitations by providing specific information regarding the GAAP amounts excluded from these non-GAAP financial measures.
We believe these non-GAAP financial measures provide investors with useful supplemental information about the financial performance of our business, enable comparison of financial results between periods where certain items may vary independent of business performance, and allow for greater transparency with respect to key metrics used by management in operating our business.
We exclude the following items from our non-GAAP financial measures:
Foreign exchange effect on revenue. We translated revenue for the three and nine months ended September 30, 2018 using the prior year's monthly exchange rates for our settlement currencies other than the U.S. dollar, which we believe is a useful metric that facilitates comparison to our historical performance.
Purchases of property and equipment. We subtract purchases of property and equipment in our calculation of free cash flow because we believe that this methodology can provide useful supplemental information to help investors better understand underlying trends in our business. Free cash flow is not intended to represent our residual cash flow available for discretionary expenditures.
For more information on our non-GAAP financial measures and a reconciliation of GAAP to non-GAAP measures, please see the "Reconciliation of GAAP to Non-GAAP Results" table in this press release.

3



FACEBOOK, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In millions, except for per share amounts)
(Unaudited)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
Revenue
$
13,727

 
$
10,328

 
$
38,924

 
$
27,681

Costs and expenses:
 
 
 
 
 
 
 
Cost of revenue
2,418

 
1,448

 
6,559

 
3,843

Research and development
2,657

 
2,052

 
7,418

 
5,805

Marketing and sales
1,928

 
1,170

 
5,379

 
3,351

General and administrative
943

 
536

 
2,475

 
1,831

Total costs and expenses
7,946

 
5,206

 
21,831

 
14,830

Income from operations
5,781

 
5,122

 
17,093

 
12,851

Interest and other income, net
131

 
114

 
297

 
281

Income before provision for income taxes
5,912

 
5,236

 
17,390

 
13,132

Provision for income taxes
775

 
529

 
2,160

 
1,467

Net income
$
5,137

 
$
4,707

 
$
15,230

 
$
11,665

Less: Net income attributable to participating securities

 
3

 
1

 
13

Net income attributable to Class A and Class B common stockholders
$
5,137

 
$
4,704

 
$
15,229

 
$
11,652

Earnings per share attributable to Class A and Class B common stockholders:
 
 
 
 
 
 
 
Basic
$
1.78

 
$
1.62

 
$
5.26

 
$
4.02

Diluted
$
1.76

 
$
1.59

 
$
5.20

 
$
3.95

Weighted average shares used to compute earnings per share attributable to Class A and Class B common stockholders:
 
 
 
 
 
 
 
Basic
2,885

 
2,904

 
2,895

 
2,898

Diluted
2,913

 
2,956

 
2,931

 
2,954

Share-based compensation expense included in costs and expenses:
 
 
 
 
 
 
 
Cost of revenue
$
72

 
$
47

 
$
202

 
$
128

Research and development
748

 
776

 
2,347

 
2,233

Marketing and sales
133

 
114

 
380

 
330

General and administrative
87

 
73

 
251

 
218

Total share-based compensation expense
$
1,040

 
$
1,010

 
$
3,180

 
$
2,909




4



FACEBOOK, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions)
(Unaudited)
 
 
 
September 30, 2018
 
December 31, 2017
Assets
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
$
9,637

 
$
8,079

 
Marketable securities
31,569

 
33,632

 
Accounts receivable, net of allowances of $207 and $189 as of September 30, 2018 and December 31, 2017, respectively
6,058

 
5,832

 
Prepaid expenses and other current assets
1,883

 
1,020

 
 
Total current assets
49,147

 
48,563

Property and equipment, net
21,112

 
13,721

Intangible assets, net
1,451

 
1,884

Goodwill
18,304

 
18,221

Other assets
2,438

 
2,135

Total assets
$
92,452

 
$
84,524

 
 
 
 
 
 
Liabilities and stockholders' equity
 
 
 
Current liabilities:
 
 
 
 
Accounts payable
$
590

 
$
380

 
Partners payable
502

 
390

 
Accrued expenses and other current liabilities
4,255

 
2,892

 
Deferred revenue and deposits
115

 
98

 
 
Total current liabilities
5,462

 
3,760

Other liabilities
6,648

 
6,417

 
 
Total liabilities
12,110

 
10,177

Commitments and contingencies
 
 
 
Stockholders' equity:
 
 
 
 
Common stock and additional paid-in capital
42,352

 
40,584

 
Accumulated other comprehensive loss
(777
)
 
(227
)
 
Retained earnings
38,767

 
33,990

 
 
Total stockholders' equity
80,342

 
74,347

Total liabilities and stockholders' equity
$
92,452

 
$
84,524




5



FACEBOOK, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017*
 
2018
 
2017*
Cash flows from operating activities
 
 
 
 
 
 
 
Net income
$
5,137

 
$
4,707

 
$
15,230

 
$
11,665

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
 
 
 
    Depreciation and amortization
1,107

 
773

 
3,090

 
2,172

    Share-based compensation
1,040

 
1,010

 
3,180

 
2,909

    Deferred income taxes
30

 
(94
)
 
83

 
(152
)
    Other
3

 
7

 
19

 
18

Changes in assets and liabilities:
 
 
 
 
 
 
 
   Accounts receivable
(489
)
 
(458
)
 
(328
)
 
(235
)
   Prepaid expenses and other current assets
8

 
(57
)
 
(889
)
 
(634
)
   Other assets
(40
)
 
47

 
(99
)
 
130

   Accounts payable
37

 
31

 
88

 
(7
)
   Partners payable
63

 
32

 
116

 
22

   Accrued expenses and other current liabilities
350

 
(62
)
 
1,044

 
95

   Deferred revenue and deposits
24

 
16

 
20

 
12

   Other liabilities
226

 
176

 
102

 
550

Net cash provided by operating activities
7,496

 
6,128

 
21,656

 
16,545

Cash flows from investing activities
 
 
 
 
 
 
 
Purchases of property and equipment
(3,343
)
 
(1,755
)
 
(9,614
)
 
(4,470
)
Purchases of marketable securities
(4,375
)
 
(6,273
)
 
(12,658
)
 
(20,410
)
Sales of marketable securities
2,492

 
3,651

 
11,104

 
7,649

Maturities of marketable securities
1,053

 
730

 
3,391

 
2,228

Acquisitions of businesses, net of cash acquired, and purchases of intangible assets
(72
)
 
(98
)
 
(137
)
 
(106
)
Other investing activities, net
(3
)
 
16

 
(4
)
 
(6
)
Net cash used in investing activities
(4,248
)
 
(3,729
)
 
(7,918
)
 
(15,115
)
Cash flows from financing activities
 
 
 
 
 
 
 
Taxes paid related to net share settlement of equity awards
(905
)
 
(866
)
 
(2,663
)
 
(2,360
)
Repurchases of Class A common stock
(4,256
)
 
(640
)
 
(9,379
)
 
(1,018
)
Other financing activities, net
3

 
(26
)
 
11

 
(14
)
Net cash used in financing activities
(5,158
)
 
(1,532
)
 
(12,031
)
 
(3,392
)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash
(14
)
 
70

 
(167
)
 
192

Net (decrease) increase in cash, cash equivalents, and restricted cash
(1,924
)
 
937

 
1,540

 
(1,770
)
Cash, cash equivalents, and restricted cash at beginning of the period
11,668

 
6,402

 
8,204

 
9,109

Cash, cash equivalents, and restricted cash at end of the period
$
9,744

 
$
7,339

 
$
9,744

 
$
7,339

 
 
 
 
 
 
 
 
Reconciliation of cash, cash equivalents, and restricted cash to the condensed consolidated balance sheets
 
 
 
 
 
 
 
Cash and cash equivalents
$
9,637

 
$
7,201

 
$
9,637

 
$
7,201

Restricted cash, included in prepaid expenses and other current assets
7

 
41

 
7

 
41

Restricted cash, included in other assets
100

 
97

 
100

 
97

Total cash, cash equivalents, and restricted cash
$
9,744

 
$
7,339

 
$
9,744

 
$
7,339

*Prior-period information has been retrospectively adjusted due to our adoption of ASU No. 2016-18, Statement of Cash Flows, Restricted Cash (Topic 230) on January 1, 2018.

6



FACEBOOK, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017*
 
2018
 
2017*
Supplemental cash flow data
 
 
 
 
 
 
 
Cash paid during the period for:
 
 
 
 
 
 
 
Income taxes, net
$
447

 
$
434

 
$
2,728

 
$
1,793

Non-cash investing and financing activities:
 
 
 
 
 
 
 
Net change in prepaids and liabilities related to property and equipment additions
$
382

 
$
300

 
$
613

 
$
540

Settlement of acquisition-related contingent consideration liability
$

 
$
102

 
$

 
$
102

Change in unsettled repurchases of Class A common stock
$

 
$
(10
)
 
$
6

 
$
20

*Prior-period information has been retrospectively adjusted due to our adoption of ASU No. 2016-18, Statement of Cash Flows, Restricted Cash (Topic 230) on January 1, 2018.





7



Reconciliation of GAAP to Non-GAAP Results
(In millions, except percentages)
(Unaudited)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
GAAP revenue
$
13,727

 
$
10,328

 
$
38,924

 
$
27,681

Foreign exchange effect on 2018 revenue using 2017 rates
159

 
 
 
(749
)
 
 
Revenue excluding foreign exchange effect
$
13,886

 
 
 
$
38,175

 
 
GAAP revenue year-over-year change %
33
%
 
 
 
41
%
 
 
Revenue excluding foreign exchange effect year-over-year change %
34
%
 
 
 
38
%
 
 
GAAP advertising revenue
$
13,539

 
$
10,142

 
$
38,373

 
$
27,163

Foreign exchange effect on 2018 advertising revenue using 2017 rates
159

 
 
 
(748
)
 
 
Advertising revenue excluding foreign exchange effect
$
13,698

 
 
 
$
37,625

 
 
GAAP advertising revenue year-over-year change %
33
%
 
 
 
41
%
 
 
Advertising revenue excluding foreign exchange effect year-over-year change %
35
%
 
 
 
39
%
 
 
 
 
 
 
 
 
 
 
Net cash provided by operating activities
$
7,496

 
$
6,128

 
$
21,656

 
$
16,545

Purchases of property and equipment
(3,343
)
 
(1,755
)
 
(9,614
)
 
(4,470
)
Free cash flow
$
4,153

 
$
4,373

 
$
12,042

 
$
12,075







8

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