Facebook Reports First Quarter 2019 Results
 
MENLO PARK, Calif. – April 24, 2019 – Facebook, Inc. (Nasdaq: FB) today reported financial results for the quarter ended
March 31, 2019
.

"We had a good quarter and our business and community continued to grow," said Mark Zuckerberg, Facebook founder and CEO. "We are focused on building out our privacy-focused vision for the future of social networking, and working collaboratively to address important issues around the internet."

First Quarter 2019 Financial Highlights
 
Three Months Ended March 31,
 
Year-over-Year % Change
In millions, except percentages and per share amounts
2019
 
2018
 
Revenue:
 
 
 
 
 
   Advertising
$
14,912

 
$
11,795

 
26
 %
   Payments and other fees
165

 
171

 
(4
)%
Total revenue
15,077

 
11,966

 
26
 %
Total costs and expenses*
11,760

 
6,517

 
80
 %
Income from operations*
$
3,317

 
$
5,449

 
(39
)%
Operating margin*
22
%
 
46
%
 

Provision for income taxes
$
1,053

 
 
 
 
Effective tax rate*
30
%
 
 
 


Net income*
$
2,429

 
$
4,988

 
(51
)%
Diluted earnings per share (EPS)*
$
0.85

 
$
1.69

 
(50
)%
*Includes a $3.0 billion legal expense accrued in the first quarter of 2019 related to the ongoing U.S. Federal Trade Commission (FTC) matter as discussed below. As this expense is not expected to be tax-deductible, it had no effect on our provision for income taxes. Excluding this expense, our operating margin would have been 20 percentage points higher, our effective tax rate would have been 14 percentage points lower and our diluted EPS would have been $1.04 higher.

First Quarter 2019 Operational and Other Financial Highlights

Daily active users (DAUs) – DAUs were 1.56 billion on average for March 2019, an increase of 8% year-over-year.
Monthly active users (MAUs) – MAUs were 2.38 billion as of March 31, 2019, an increase of 8% year-over-year.
Mobile advertising revenue – Mobile advertising revenue represented approximately 93% of advertising revenue for the first quarter of 2019, up from approximately 91% of advertising revenue in the first quarter of 2018.
Capital expenditures – Capital expenditures, including principal payments on finance leases, were $3.96 billion for the first quarter of 2019.
Cash and cash equivalents and marketable securities – Cash and cash equivalents and marketable securities were $45.24 billion at the end of the first quarter of 2019.
Headcount – Headcount was 37,773 as of March 31, 2019, an increase of 36% year-over-year.

In addition, we estimate that more than 2.1 billion people now use Facebook, Instagram, WhatsApp, or Messenger (our "Family" of services) every day on average, and around 2.7 billion people use at least one of our Family of services each month.

In the first quarter of 2019, we reasonably estimated a probable loss and recorded an accrual of $3.0 billion in connection with the inquiry of the FTC into our platform and user data practices, which accrual is included in accrued expenses and other current liabilities on our condensed consolidated balance sheet. We estimate that the range of loss in this matter is $3.0 billion to $5.0 billion. The matter remains unresolved, and there can be no assurance as to the timing or the terms of any final outcome.

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 9195605.

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 Annual Report on Form 10-K filed with the SEC on January 31, 2019, 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 March 31, 2019. In addition, please note that the date of this press release is April 24, 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 ended March 31, 2019 using the prior year's monthly exchange rates for our settlement or billing 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; Principal payments on finance leases.(1) We subtract both net purchases of property and equipment and principal payments on finance leases in our calculation of free cash flow because we believe that these two items collectively represent the amount of property and equipment we need to procure to support our business, regardless of whether we procure such property or equipment with a finance lease. 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.

(1) As a result of our adoption of Accounting Standards Update No. 2016-02, Leases (Topic 842) on January 1, 2019, we have conformed our definition of free cash flow to the nomenclature of the new accounting standard.

3



FACEBOOK, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In millions, except for per share amounts)
(Unaudited)
 
Three Months Ended March 31,
 
2019*
 
2018
Revenue
$
15,077

 
$
11,966

Costs and expenses:
 
 
 
Cost of revenue
2,816

 
1,927

Research and development
2,860

 
2,238

Marketing and sales
2,020

 
1,595

General and administrative
4,064

 
757

Total costs and expenses
11,760

 
6,517

Income from operations
3,317

 
5,449

Interest and other income, net
165

 
161

Income before provision for income taxes
3,482

 
5,610

Provision for income taxes
1,053

 
622

Net income
$
2,429

 
$
4,988

Less: Net income attributable to participating securities

 
1

Net income attributable to Class A and Class B common stockholders
$
2,429

 
$
4,987

Earnings per share attributable to Class A and Class B common stockholders:
 
 
 
Basic
$
0.85

 
$
1.72

Diluted
$
0.85

 
$
1.69

Weighted average shares used to compute earnings per share attributable to Class A and Class B common stockholders:
 
 
 
Basic
2,856

 
2,906

Diluted
2,869

 
2,945

Share-based compensation expense included in costs and expenses:
 
 
 
Cost of revenue
$
87

 
$
56

Research and development
723

 
718

Marketing and sales
113

 
109

General and administrative
87

 
72

Total share-based compensation expense
$
1,010

 
$
955

*Includes a $3.0 billion legal expense accrued within general and administrative expense related to the ongoing FTC matter as discussed above.



4



FACEBOOK, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions)
(Unaudited)
 
 
 
March 31, 2019
 
December 31, 2018
Assets
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
$
11,076

 
$
10,019

 
Marketable securities
34,167

 
31,095

 
Accounts receivable, net of allowances of $216 and $229 as of March 31, 2019 and December 31, 2018, respectively
6,475

 
7,587

 
Prepaid expenses and other current assets
1,582

 
1,779

 
 
Total current assets
53,300

 
50,480

Property and equipment, net
27,345

 
24,683

Operating lease right-of-use assets, net
6,747

 

Intangible assets, net
1,150

 
1,294

Goodwill
18,333

 
18,301

Other assets
2,602

 
2,576

Total assets
$
109,477

 
$
97,334

 
 
 
 
 
 
Liabilities and stockholders' equity
 
 
 
Current liabilities:
 
 
 
 
Accounts payable
$
604

 
$
820

 
Partners payable
537

 
541

 
Operating lease liabilities, current
645

 

 
Accrued expenses and other current liabilities
7,980

 
5,509

 
Deferred revenue and deposits
142

 
147

 
 
Total current liabilities
9,908

 
7,017

Operating lease liabilities, non-current
6,565

 

Other liabilities
6,488

 
6,190

 
 
Total liabilities
22,961

 
13,207

Commitments and contingencies
 
 
 
Stockholders' equity:
 
 
 
 
Common stock and additional paid-in capital
43,533

 
42,906

 
Accumulated other comprehensive loss
(781
)
 
(760
)
 
Retained earnings
43,764

 
41,981

 
 
Total stockholders' equity
86,516

 
84,127

Total liabilities and stockholders' equity
$
109,477

 
$
97,334




5



FACEBOOK, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
 
Three Months Ended March 31,
 
2019
 
2018
Cash flows from operating activities
 
 
 
Net income
$
2,429

 
$
4,988

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
   Depreciation and amortization
1,355

 
949

   Share-based compensation
1,010

 
955

   Deferred income taxes
183

 
(47
)
   Other
6

 
8

Changes in assets and liabilities:
 
 
 
   Accounts receivable
1,070

 
788

   Prepaid expenses and other current assets
84

 
(365
)
   Other assets
41

 
22

   Operating lease right-of-use assets, net
(1,190
)
 

   Accounts payable
(96
)
 
1

   Partners payable
(1
)
 
2

   Accrued expenses and other current liabilities
3,154

 
707

   Deferred revenue and deposits
(4
)
 
(5
)
   Operating lease liabilities, non-current
1,083

 

   Other liabilities
184

 
(143
)
Net cash provided by operating activities
9,308

 
7,860

Cash flows from investing activities
 
 
 
Purchases of property and equipment, net
(3,837
)
 
(2,812
)
Purchases of marketable securities
(6,603
)
 
(4,022
)
Sales of marketable securities
1,512

 
4,330

Maturities of marketable securities
2,210

 
1,267

Other investing activities, net
(50
)
 
(50
)
Net cash used in investing activities
(6,768
)
 
(1,287
)
Cash flows from financing activities
 
 
 
Taxes paid related to net share settlement of equity awards
(512
)
 
(832
)
Repurchases of Class A common stock
(613
)
 
(1,774
)
Principal payments on finance leases
(125
)
 

Net change in overdraft in cash pooling entities
(177
)
 

Other financing activities, net
4

 
3

Net cash used in financing activities
(1,423
)
 
(2,603
)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash
(44
)
 
36

Net increase in cash, cash equivalents, and restricted cash
1,073

 
4,006

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

 
8,204

Cash, cash equivalents, and restricted cash at end of the period
$
11,197

 
$
12,210

 
 
 
 
Reconciliation of cash, cash equivalents, and restricted cash to the condensed consolidated balance sheets
 
 
 
Cash and cash equivalents
$
11,076

 
$
12,082

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

 
14

Restricted cash, included in other assets
111

 
114

Total cash, cash equivalents, and restricted cash
$
11,197

 
$
12,210



6



FACEBOOK, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
 
Three Months Ended March 31,
 
2019
 
2018
Supplemental cash flow data
 
 
 
Cash paid during the period for:
 
 
 
Interest
$
2

 
$

Income taxes, net
$
682

 
$
736

Non-cash investing activities:
 
 
 
Net change in prepaids and liabilities related to property and equipment
$
(314
)
 
$
429

Accrued property and equipment
$
1,617

 
$
1,291






7



Reconciliation of GAAP to Non-GAAP Results
(In millions, except percentages)
(Unaudited)
 
Three Months Ended March 31,
 
2019
 
2018
GAAP revenue
$
15,077

 
$
11,966

Foreign exchange effect on 2019 revenue using 2018 rates
503

 
 
Revenue excluding foreign exchange effect
$
15,580

 
 
GAAP revenue year-over-year change %
26
%
 
 
Revenue excluding foreign exchange effect year-over-year change %
30
%
 
 
GAAP advertising revenue
$
14,912

 
$
11,795

Foreign exchange effect on 2019 advertising revenue using 2018 rates
503

 
 
Advertising revenue excluding foreign exchange effect
$
15,415

 
 
GAAP advertising revenue year-over-year change %
26
%
 
 
Advertising revenue excluding foreign exchange effect year-over-year change %
31
%
 
 
 
 
 
 
Net cash provided by operating activities
$
9,308

 
$
7,860

Purchases of property and equipment, net
(3,837
)
 
(2,812
)
Principal payments on finance leases
(125
)
 

Free cash flow
$
5,346

 
$
5,048







8

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