Facebook Reports Fourth Quarter and Full Year 2018 Results
 
MENLO PARK, Calif. – January 30, 2019 – Facebook, Inc. (Nasdaq: FB) today reported financial results for the quarter and full year ended December 31, 2018.

"Our community and business continue to grow," said Mark Zuckerberg, Facebook founder and CEO. "We've fundamentally changed how we run our company to focus on the biggest social issues, and we're investing more to build new and inspiring ways for people to connect."

Fourth Quarter and Full Year 2018 Financial Highlights

 
Three Months Ended December 31,
 
Year-over-Year % Change
 
Year Ended December 31,
 
Year-over-Year % Change
In millions, except percentages and per share amounts
2018
 
2017
 
 
2018
 
2017
 
Revenue:
 
 
 
 
 
 
 
 
 
 
 
   Advertising
$
16,640

 
$
12,779

 
30
 %
 
$
55,013

 
$
39,942

 
38
 %
   Payments and other fees
274

 
193

 
42
 %
 
825

 
711

 
16
 %
Total revenue
16,914

 
12,972

 
30
 %
 
55,838

 
40,653

 
37
 %
Total costs and expenses
9,094

 
5,620

 
62
 %
 
30,925

 
20,450

 
51
 %
Income from operations
$
7,820

 
$
7,352

 
6
 %
 
$
24,913

 
$
20,203

 
23
 %
Operating margin
46
%
 
57
%
 

 
45
%
 
50
%
 
 
Provision for income taxes(1)
$
1,089

 
$
3,194

 
(66
)%
 
$
3,249

 
$
4,660

 
(30
)%
Effective tax rate(1)
14
%
 
43
%
 


 
13
%
 
23
%
 
 
Net income(1)
$
6,882

 
$
4,268

 
61
 %
 
$
22,112

 
$
15,934

 
39
 %
Diluted Earnings per Share (EPS)(1)
$
2.38

 
$
1.44

 
65
 %
 
$
7.57

 
$
5.39

 
40
 %
(1) In December 2017, the 2017 Tax Cuts and Jobs Act was enacted and significantly impacted U.S. tax law. As a result of this legislation, our fourth quarter and full year 2017 provision for income taxes increased by $2.27 billion, which impacted our effective tax rate, net income and diluted EPS for such periods. Our diluted EPS decreased by $0.77 for both the fourth quarter and full year 2017.

Fourth Quarter and Full Year 2018 Operational and Other Financial Highlights

Daily active users (DAUs) – DAUs were 1.52 billion on average for December 2018, an increase of 9% year-over-year.
Monthly active users (MAUs) – MAUs were 2.32 billion as of December 31, 2018, an increase of 9% year-over-year.
Mobile advertising revenue – Mobile advertising revenue represented approximately 93% of advertising revenue for the fourth quarter of 2018, up from approximately 89% of advertising revenue in the fourth quarter of 2017.
Capital expenditures – Capital expenditures were $4.37 billion and $13.92 billion for the fourth quarter and full year 2018, respectively.
Cash and cash equivalents and marketable securities – Cash and cash equivalents and marketable securities were $41.11 billion at the end of the fourth quarter of 2018.
Headcount – Headcount was 35,587 as of December 31, 2018, an increase of 42% year-over-year.

In addition, we estimate that around 2.7 billion people now use Facebook, Instagram, WhatsApp, 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 6461349.

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; risks associated with government actions that could restrict access to our products or impair our ability to sell advertising in certain countries; 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 October 31, 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 Annual Report on Form 10-K for the year ended December 31, 2018. In addition, please note that the date of this press release is
January 30, 2019
, 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 months and year ended December 31, 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, net. We subtract net 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 December 31,
 
Year Ended December 31,
 
2018
 
2017
 
2018
 
2017
Revenue
$
16,914

 
$
12,972

 
$
55,838

 
$
40,653

Costs and expenses:
 
 
 
 
 
 
 
Cost of revenue
2,796

 
1,611

 
9,355

 
5,454

Research and development
2,855

 
1,949

 
10,273

 
7,754

Marketing and sales
2,467

 
1,374

 
7,846

 
4,725

General and administrative
976

 
686

 
3,451

 
2,517

Total costs and expenses
9,094

 
5,620

 
30,925

 
20,450

Income from operations
7,820

 
7,352

 
24,913

 
20,203

Interest and other income (expense), net
151

 
110

 
448

 
391

Income before provision for income taxes
7,971

 
7,462

 
25,361

 
20,594

Provision for income taxes
1,089

 
3,194

 
3,249

 
4,660

Net income
$
6,882

 
$
4,268

 
$
22,112

 
$
15,934

Less: Net income attributable to participating securities

 
2

 
1

 
14

Net income attributable to Class A and Class B common stockholders
$
6,882

 
$
4,266

 
$
22,111

 
$
15,920

Earnings per share attributable to Class A and Class B common stockholders:
 
 
 
 
 
 
 
Basic
$
2.40

 
$
1.47

 
$
7.65

 
$
5.49

Diluted
$
2.38

 
$
1.44

 
$
7.57

 
$
5.39

Weighted average shares used to compute earnings per share attributable to Class A and Class B common stockholders:
 
 
 
 
 
 
 
Basic
2,872

 
2,907

 
2,890

 
2,901

Diluted
2,886

 
2,954

 
2,921

 
2,956

Share-based compensation expense included in costs and expenses:
 
 
 
 
 
 
 
Cost of revenue
$
82

 
$
50

 
$
284

 
$
178

Research and development
675

 
587

 
3,022

 
2,820

Marketing and sales
130

 
106

 
511

 
436

General and administrative
84

 
71

 
335

 
289

Total share-based compensation expense
$
971

 
$
814

 
$
4,152

 
$
3,723




4



FACEBOOK, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions)
(Unaudited)
 
 
 
December 31, 2018
 
December 31, 2017
Assets
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
$
10,019

 
$
8,079

 
Marketable securities
31,095

 
33,632

 
Accounts receivable, net of allowances of $229 and $189 as of December 31, 2018 and 2017, respectively
7,587

 
5,832

 
Prepaid expenses and other current assets
1,779

 
1,020

 
 
Total current assets
50,480

 
48,563

Property and equipment, net
24,683

 
13,721

Intangible assets, net
1,294

 
1,884

Goodwill
18,301

 
18,221

Other assets
2,576

 
2,135

Total assets
$
97,334

 
$
84,524

 
 
 
 
 
 
Liabilities and stockholders' equity
 
 
 
Current liabilities:
 
 
 
 
Accounts payable
$
820

 
$
380

 
Partners payable
541

 
390

 
Accrued expenses and other current liabilities
5,509

 
2,892

 
Deferred revenue and deposits
147

 
98

 
 
Total current liabilities
7,017

 
3,760

Other liabilities
6,190

 
6,417

 
 
Total liabilities
13,207

 
10,177

Commitments and contingencies
 
 
 
Stockholders' equity:
 
 
 
 
Common stock and additional paid-in capital
42,906

 
40,584

 
Accumulated other comprehensive loss
(760
)
 
(227
)
 
Retained earnings
41,981

 
33,990

 
 
Total stockholders' equity
84,127

 
74,347

Total liabilities and stockholders' equity
$
97,334

 
$
84,524




5



FACEBOOK, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
 
Three Months Ended December 31,
 
Year Ended December 31,
 
2018
 
2017*
 
2018
 
2017*
Cash flows from operating activities
 
 
 
 
 
 
 
Net income
$
6,882

 
$
4,268

 
$
22,112

 
$
15,934

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
 
 
 
    Depreciation and amortization
1,225

 
853

 
4,315

 
3,025

    Share-based compensation
971

 
814

 
4,152

 
3,723

    Deferred income taxes
201

 
(225
)
 
286

 
(377
)
    Other
(19
)
 
5

 
(64
)
 
24

Changes in assets and liabilities:
 
 
 
 
 
 
 
   Accounts receivable
(1,564
)
 
(1,374
)
 
(1,892
)
 
(1,609
)
   Prepaid expenses and other current assets
198

 
441

 
(690
)
 
(192
)
   Other assets
(60
)
 
26

 
(159
)
 
154

   Accounts payable
133

 
50

 
221

 
43

   Partners payable
41

 
73

 
157

 
95

   Accrued expenses and other current liabilities
378

 
215

 
1,417

 
309

   Deferred revenue and deposits
33

 
(7
)
 
53

 
4

   Other liabilities
(735
)
 
2,531

 
(634
)
 
3,083

Net cash provided by operating activities
7,684

 
7,670

 
29,274

 
24,216

Cash flows from investing activities
 
 
 
 
 
 
 
Purchases of property and equipment, net
(4,366
)
 
(2,262
)
 
(13,915
)
 
(6,733
)
Purchases of marketable securities
(1,997
)
 
(5,272
)
 
(14,656
)
 
(25,682
)
Sales of marketable securities
1,254

 
1,795

 
12,358

 
9,444

Maturities of marketable securities
1,381

 
760

 
4,772

 
2,988

Acquisitions of businesses, net of cash acquired, and purchases of intangible assets

 
(17
)
 
(137
)
 
(122
)
Other investing activities, net
(21
)
 
(7
)
 
(25
)
 
(13
)
Net cash used in investing activities
(3,749
)
 
(5,003
)
 
(11,603
)
 
(20,118
)
Cash flows from financing activities
 
 
 
 
 
 
 
Taxes paid related to net share settlement of equity awards
(545
)
 
(885
)
 
(3,208
)
 
(3,246
)
Repurchases of Class A common stock
(3,500
)
 
(958
)
 
(12,879
)
 
(1,976
)
Net change in overdraft in cash pooling entities
500

 

 
500

 

Other financing activities, net
4

 
1

 
15

 
(13
)
Net cash used in financing activities
(3,541
)
 
(1,842
)
 
(15,572
)
 
(5,235
)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash
(14
)
 
40

 
(179
)
 
232

Net increase (decrease) in cash, cash equivalents, and restricted cash
380

 
865

 
1,920

 
(905
)
Cash, cash equivalents, and restricted cash at beginning of the period
9,744

 
7,339

 
8,204

 
9,109

Cash, cash equivalents, and restricted cash at end of the period
$
10,124

 
$
8,204

 
$
10,124

 
$
8,204

 
 
 
 
 
 
 
 
Reconciliation of cash, cash equivalents, and restricted cash to the condensed consolidated balance sheets
 
 
 
 
 
 
 
Cash and cash equivalents
$
10,019

 
$
8,079

 
$
10,019

 
$
8,079

Restricted cash, included in prepaid expenses and other current assets
10

 
18

 
10

 
18

Restricted cash, included in other assets
95

 
107

 
95

 
107

Total cash, cash equivalents, and restricted cash
$
10,124

 
$
8,204

 
$
10,124

 
$
8,204

*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 December 31,
 
Year Ended December 31,
 
2018
 
2017*
 
2018
 
2017*
Supplemental cash flow data
 
 
 
 
 
 
 
Cash paid during the period for:
 
 
 
 
 
 
 
Interest
$
1

 
$

 
$
1

 
$

Income taxes, net
$
1,034

 
$
324

 
$
3,762

 
$
2,117

Non-cash investing and financing activities:
 
 
 
 
 
 
 
Net change in prepaids and liabilities related to property and equipment additions
$
306

 
$
(44
)
 
$
918

 
$
495

Settlement of acquisition-related contingent consideration liability
$

 
$

 
$

 
$
102

Change in unsettled repurchases of Class A common stock
$
44

 
$
74

 
$
51

 
$
94

*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 December 31,
 
Year Ended December 31,
 
2018
 
2017
 
2018
 
2017
GAAP revenue
$
16,914

 
$
12,972

 
$
55,838

 
$
40,653

Foreign exchange effect on 2018 revenue using 2017 rates
348

 
 
 
(401
)
 
 
Revenue excluding foreign exchange effect
$
17,262

 
 
 
$
55,437

 
 
GAAP revenue year-over-year change %
30
%
 
 
 
37
%
 
 
Revenue excluding foreign exchange effect year-over-year change %
33
%
 
 
 
36
%
 
 
GAAP advertising revenue
$
16,640

 
$
12,779

 
$
55,013

 
$
39,942

Foreign exchange effect on 2018 advertising revenue using 2017 rates
347

 
 
 
(401
)
 
 
Advertising revenue excluding foreign exchange effect
$
16,987

 
 
 
$
54,612

 
 
GAAP advertising revenue year-over-year change %
30
%
 
 
 
38
%
 
 
Advertising revenue excluding foreign exchange effect year-over-year change %
33
%
 
 
 
37
%
 
 
 
 
 
 
 
 
 
 
Net cash provided by operating activities
$
7,684

 
$
7,670

 
$
29,274

 
$
24,216

Purchases of property and equipment, net
(4,366
)
 
(2,262
)
 
(13,915
)
 
(6,733
)
Free cash flow
$
3,318

 
$
5,408

 
$
15,359

 
$
17,483







8

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