Facebook Reports Third Quarter 2017 Results
 
MENLO PARK, Calif. – November 1, 2017 – Facebook, Inc. (NASDAQ: FB) today reported financial results for the quarter ended September 30, 2017.

"Our community continues to grow and our business is doing well," said Mark Zuckerberg, Facebook founder and CEO. "But none of that matters if our services are used in ways that don't bring people closer together. We're serious about preventing abuse on our platforms. We're investing so much in security that it will impact our profitability. Protecting our community is more important than maximizing our profits."
 

Third Quarter 2017 Financial Highlights

 
Three Months Ended September 30,
 
Year-over-Year % Change
In millions, except percentages and per share amounts
2017
 
2016
 
Revenue:
 
 
 
 
 
   Advertising
$
10,142

 
$
6,816

 
49
 %
   Payments and other fees
186

 
195

 
(5
)%
Total revenue
10,328

 
7,011

 
47
 %
Total costs and expenses(1)
5,206

 
3,894

 
34
 %
Income from operations(1)
$
5,122

 
$
3,117

 
64
 %
Operating margin(1)
50
%
 
44
%
 

Provision for income taxes
$
529

 
 
 

Effective tax rate
10
%
 
 
 


Net income(1)
$
4,707

 
$
2,627

 
79
 %
Diluted Earnings per Share (EPS)(1)
$
1.59

 
$
0.90

 
77
 %
(1) In the fourth quarter of 2016, we elected to early adopt Accounting Standards Update No. 2016-09, Compensation - Stock Compensation (Topic 718): Improvement to Employee Share-based Payment Accounting (ASU 2016-09). We were required to reflect any adoption adjustments as of January 1, 2016, the beginning of the annual period that included the interim period of adoption. As such, certain financial highlights data for the three months ended September 30, 2016 had been adjusted to reflect the impact of ASU 2016-09 adoption. See Note 1 — Summary of Significant Accounting Policies (Note 1) in the notes to our consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2016 for detailed adoption information.

Third Quarter 2017 Operational and Other Financial Highlights

•
Daily active users (DAUs) – DAUs were 1.37 billion on average for September 2017, an increase of 16% year-over-year.
•
Monthly active users (MAUs) – MAUs were 2.07 billion as of September 30, 2017, an increase of 16% year-over-year.
•
Mobile advertising revenue – Mobile advertising revenue represented approximately 88% of advertising revenue for the third quarter of 2017, up from approximately 84% of advertising revenue in the third quarter of 2016.
•
Capital expenditures – Capital expenditures for the third quarter of 2017 were $1.76 billion.
•
Cash and cash equivalents and marketable securities – Cash and cash equivalents and marketable securities were $38.29 billion at the end of the third quarter of 2017.
•
Headcount – Headcount was 23,165 as of September 30, 2017, an increase of 47% year-over-year.




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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 81859774.

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

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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 product development and their introduction as well as other new business initiatives; our emphasis on user growth and engagement and the user experience over short-term financial results; competition; litigation; 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 27, 2017, 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, 2017. In addition, please note that the date of this press release is November 1, 2017, 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, 2017 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.

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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,
 
2017
 
2016(1)
 
2017
 
2016(1)
Revenue
$
10,328

 
$
7,011

 
$
27,681

 
$
18,829

Costs and expenses:
 
 
 
 
 
 
 
Cost of revenue
1,448

 
987

 
3,843

 
2,742

Research and development
2,052

 
1,542

 
5,805

 
4,356

Marketing and sales
1,170

 
926

 
3,351

 
2,654

General and administrative
536

 
439

 
1,831

 
1,217

Total costs and expenses
5,206

 
3,894

 
14,830

 
10,969

Income from operations
5,122

 
3,117

 
12,851

 
7,860

Interest and other income, net
114

 
47

 
281

 
125

Income before provision for income taxes
5,236

 
3,164

 
13,132

 
7,985

Provision for income taxes
529

 
537

 
1,467

 
1,337

Net income
$
4,707

 
$
2,627

 
$
11,665

 
$
6,648

Less: Net income attributable to participating securities
3

 
7

 
13

 
20

Net income attributable to Class A and Class B common stockholders
$
4,704

 
$
2,620

 
$
11,652

 
$
6,628

Earnings per share attributable to Class A and Class B common stockholders:
 
 
 
 
 
 
 
Basic
$
1.62

 
$
0.91

 
$
4.02

 
$
2.32

Diluted
$
1.59

 
$
0.90

 
$
3.95

 
$
2.28

Weighted average shares used to compute earnings per share attributable to Class A and Class B common stockholders:
 
 
 
 
 
 
 
Basic
2,904

 
2,871

 
2,898

 
2,857

Diluted
2,956

 
2,931

 
2,954

 
2,918

Share-based compensation expense included in costs and expenses:
 
 
 
 
 
 
 
Cost of revenue
$
47

 
$
30

 
$
128

 
$
81

Research and development
776

 
636

 
2,233

 
1,853

Marketing and sales
114

 
95

 
330

 
272

General and administrative
73

 
63

 
218

 
181

Total share-based compensation expense
$
1,010

 
$
824

 
$
2,909

 
$
2,387

(1) We elected to early adopt ASU 2016-09 in the fourth quarter of 2016. Our condensed consolidated statements of income for the three and nine months ended September 30, 2016 had been adjusted to reflect the impact of ASU 2016-09 adoption. See Note 1 in the notes to our consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2016 for detailed adoption information.


4


FACEBOOK, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions)
(Unaudited)
 
 
 
September 30, 2017
 
December 31, 2016
Assets
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
$
7,201

 
$
8,903

 
Marketable securities
31,088

 
20,546

 
Accounts receivable, net of allowances for doubtful accounts of $103 and $94 as of September 30, 2017 and December 31, 2016, respectively
4,424

 
3,993

 
Prepaid expenses and other current assets
1,490

 
959

 
 
Total current assets
44,203

 
34,401

Property and equipment, net
12,158

 
8,591

Intangible assets, net
2,050

 
2,535

Goodwill
18,213

 
18,122

Other assets
2,374

 
1,312

Total assets
$
78,998

 
$
64,961

 
 
 
 
 
 
Liabilities and stockholders' equity
 
 
 
Current liabilities:
 
 
 
 
Accounts payable
$
383

 
$
302

 
Partners payable
314

 
280

 
Accrued expenses and other current liabilities
2,503

 
2,203

 
Deferred revenue and deposits
105

 
90

 
 
Total current liabilities
3,305

 
2,875

Other liabilities
4,485

 
2,892

 
 
Total liabilities
7,790

 
5,767

Stockholders' equity:
 
 
 
 
Common stock and additional paid-in capital
40,199

 
38,227

 
Accumulated other comprehensive loss
(200
)
 
(703
)
 
Retained earnings
31,209

 
21,670

 
 
Total stockholders' equity
71,208

 
59,194

Total liabilities and stockholders' equity
$
78,998

 
$
64,961




5


FACEBOOK, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2017
 
2016(1)
 
2017
 
2016(1)
Cash flows from operating activities
 
 
 
 
 
 
 
Net income
$
4,707

 
$
2,627

 
$
11,665

 
$
6,648

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
 
 
 
Depreciation and amortization
773

 
591

 
2,172

 
1,728

Share-based compensation
1,010

 
824

 
2,909

 
2,387

Deferred income taxes
(94
)
 
(23
)
 
(152
)
 
(201
)
Other
7

 
4

 
18

 
23

Changes in assets and liabilities:
 
 
 
 
 
 
 
Accounts receivable
(458
)
 
(253
)
 
(235
)
 
(478
)
Prepaid expenses and other current assets
(57
)
 
(57
)
 
(634
)
 
(314
)
Other assets
47

 
42

 
130

 
46

Accounts payable
31

 
18

 
(7
)
 
(21
)
Partners payable
32

 
6

 
22

 
20

Accrued expenses and other current liabilities
(62
)
 
228

 
95

 
642

Deferred revenue and deposits
16

 
(2
)
 
12

 
21

Other liabilities
176

 
31

 
550

 
677

Net cash provided by operating activities
6,128

 
4,036

 
16,545

 
11,178

Cash flows from investing activities
 
 
 
 
 
 
 
Purchases of property and equipment
(1,755
)
 
(1,095
)
 
(4,470
)
 
(3,222
)
Purchases of marketable securities
(6,273
)
 
(7,733
)
 
(20,410
)
 
(17,368
)
Sales of marketable securities
3,651

 
5,633

 
7,649

 
9,791

Maturities of marketable securities
730

 
131

 
2,228

 
1,034

Acquisitions of businesses, net of cash acquired, and purchases of intangible assets
(98
)
 
(61
)
 
(106
)
 
(81
)
Change in restricted cash and deposits
31

 
8

 
64

 
82

Net cash used in investing activities
(3,714
)
 
(3,117
)
 
(15,045
)
 
(9,764
)
Cash flows from financing activities
 
 
 
 
 
 
 
Taxes paid related to net share settlement of equity awards
(866
)
 
(6
)
 
(2,360
)
 
(6
)
Principal payments on capital lease and other financing obligations
—

 
—

 
—

 
(312
)
Repurchases of Class A common stock
(640
)
 
—

 
(1,018
)
 
—

Other financing activities, net
(26
)
 
(2
)
 
(14
)
 
4

Net cash used in financing activities
(1,532
)
 
(8
)
 
(3,392
)
 
(314
)
Effect of exchange rate changes on cash and cash equivalents
67

 
19

 
190

 
31

Net increase (decrease) in cash and cash equivalents
949

 
930

 
(1,702
)
 
1,131

Cash and cash equivalents at beginning of period
6,252

 
5,108

 
8,903

 
4,907

Cash and cash equivalents at end of period
$
7,201

 
$
6,038

 
$
7,201

 
$
6,038



6


FACEBOOK, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2017
 
2016(1)
 
2017
 
2016(1)
Supplemental cash flow data
 
 
 
 
 
 
 
Cash paid during the period for:
 
 
 
 
 
 
 
Interest
$
—

 
$
—

 
$
—

 
$
11

Income taxes, net
$
434

 
$
357

 
$
1,793

 
$
764

Non-cash investing and financing activities:
 
 
 
 
 
 
 
Net change in accounts payable, accrued expenses and other current liabilities, and other liabilities related to property and equipment additions
$
285

 
$
230

 
$
441

 
$
319

Settlement of acquisition-related contingent consideration liability
$
102

 
$
33

 
$
102

 
$
33

Change in unsettled repurchases of Class A common stock
$
(10
)
 
$
—

 
$
20

 
$
—

(1) We elected to early adopt ASU 2016-09 in the fourth quarter of 2016. Our condensed consolidated statements of cash flows for the three and nine months ended September 30, 2016 had been adjusted to reflect the impact of ASU 2016-09 adoption. See Note 1 in the notes to our consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2016 for detailed adoption information.




7


Reconciliation of GAAP to Non-GAAP Results
(In millions, except percentages)
(Unaudited)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
GAAP revenue
$
10,328

 
$
7,011

 
$
27,681

 
$
18,829

   Foreign exchange effect on 2017 revenue using 2016 rates
(128
)
 
 
 
36

 
 
Revenue excluding foreign exchange effect
$
10,200

 
 
 
$
27,717

 
 
GAAP revenue year-over-year change %
47
%
 
 
 
47
%
 
 
Revenue excluding foreign exchange effect year-over-year change %
45
%
 
 
 
47
%
 
 
GAAP advertising revenue
$
10,142

 
$
6,816

 
$
27,163

 
$
18,256

   Foreign exchange effect on 2017 advertising revenue using 2016 rates
(128
)
 
 
 
35

 
 
Advertising revenue excluding foreign exchange effect
$
10,014

 
 
 
$
27,198

 
 
GAAP advertising revenue year-over-year change %
49
%
 
 
 
49
%
 
 
Advertising revenue excluding foreign exchange effect year-over-year change %
47
%
 
 
 
49
%
 
 
 
 
 
 
 
 
 
 
Net cash provided by operating activities(1)
$
6,128

 
$
4,036

 
$
16,545

 
$
11,178

   Purchases of property and equipment
(1,755
)
 
(1,095
)
 
(4,470
)
 
(3,222
)
Free cash flow(1)
$
4,373

 
$
2,941

 
$
12,075

 
$
7,956

(1) We elected to early adopt ASU 2016-09 in the fourth quarter of 2016. Net cash provided by operating activities and free cash flow for the three and nine months ended September 30, 2016 had been adjusted to reflect the impact of ASU 2016-09 adoption. See Note 1 in the notes to our consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2016 for detailed adoption information.





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