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In Your Face(book): Earnings Estimates Crushed
By JIM CRAMER AND JACK MOHR Follow | JAN 28, 2016 | 6:00 AM EST

Stock quotes in this article: FB
The following commentary was originally sent to Action Alerts PLUS subscribers on Jan. 27, 2016.

Facebook (FB:Nasdaq) reported a massive top- and bottom-line beat Wednesday evening in its fourth-quarter results, with revenues of $5.84 billion (up 52% year over year) blowing away consensus of $5.37 billion and earnings per share of $0.79 besting consensus by $0.11. The company also posted strong operating margins of 60%, which came in 30 basis points ahead of consensus. (Facebook is part of TheStreet's Action Alerts PLUS portfolio.)

The huge revenue increase over last year's fourth quarter was driven by a 57% rise in overall advertising revenue. Importantly, mobile advertising revenue was $4.51 billion (up 82% year over year), which dwarfed consensus expectations for $4.09 billion, and represented 80% of total advertising revenue, up from 69% a year earlier. In addition, desktop advertising growth came in around $1.11 billion, which was flat year over year, but better than the expected 4% decline.

Moving on to the important user metrics, Facebook reported that it had 1.04 billion daily active users (DAUs) vs. expectations for 1.03 billion, a 17% advance year over year and 3% quarter over quarter. Mobile DAUs came in at 934 million, also beating consensus of 931 million, a 25.4% increase over fourth-quarter 2014 and a 4.5% jump sequentially.

Monthly active users (MAUs) were 1.59 billion (slightly beating consensus of 1.58 billion), marking a 14.1% increase over last year's fourth quarter and a 2.6% rise quarter over quarter. Mobile MAUs were 1.44 billion vs. consensus of 1.42 billion, a 21.1% surge year over year and a 3.6% jump sequentially. Importantly, these numbers imply that more than 90% of monthly and daily active users were on mobile, a first for the company, and a very important milestone considering the growing trend toward mobile usage and advertising.

In terms of monetization, Facebook had average revenue per user (ARPU) of $3.73, again blowing away consensus expectations, which were looking for $3.40. This figure comes in almost 33% higher than last year's fourth quarter and 26% better than the prior quarter. ARPUs grew in every major region, with roughly 30% sequential gains in the U.S. and Canada (where it earned a whopping $13.54 per user), Europe and Asia Pacific. Cost of sales declined to 14% in the quarter, from 17% in 4Q 2014 and 16% in 3Q 2015.

Taking a step back and looking at all these metrics, it is easy to see Facebook has clearly cemented itself as the most efficient and effective company in monetizing a massive digital user base.

All in all, we are completely blown away by Facebook's quarter where it outdid expectations across the board. The company and its agile management team are outdoing their peers in all categories and they are just getting started on what is promising to be a long, profitable journey. This team has worked for a long time to develop a large, loyal user base and its calculated approach is continuing to pay off as advertisers flock to market their brands on the platform. Even better, these incredible results are without any additional detail on its high-potential growth assets such as WhatsApp, Instagram, Messenger and Oculus.

As for Instagram specifically, COO Sheryl Sandberg noted that Facebook's ad partners have been extremely happy with the advertising platform -- 98 of its top 100 marketers are already utilizing the service, which obviously bodes well for the future. Sandberg has stressed the importance of quality in the past, and it is clearly paying off with Instagram. As for WhatsApp and Messenger, she noted the company is first trying to grow and solidify usage before attempting to gain money from them, which we view as a smart approach given that it can lean on core platforms for the time being.

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