Facebook, Inc. (NASDAQ:FB) Strong Growth Continues

Facebook, Inc. (NASDAQ:FB) Strong Growth Continues

Facebook, Inc. (NASDAQ:FB) Strong Growth Continues

Facebook (FB) on July 24 reported financial results for its second quarter of fiscal 2019.

For the period, revenues increased 28% (and 32% in constant currency) to $16.9 billion. That was a sequential improvement from the first quarter and much better than the mid-single digit percentage decline that management had guided for. Growth was driven by a 33% increase in advertising impressions, with the average price per ad declining by 4% due to mix shift to Instagram Stories ads and geographies that monetize at lower rates (outside of the U.S.).

Adjusted for an additional $2 billion in legal expenses related to the Federal Trade Commission settlement (on top of the $3 billion accrued in the first quarter), operating expenses increased 39% to $10.3 billion. This was largely attributable to a more than 30% increase in headcount.

The outsized growth of expenses relative to revenues weighed on profitability, with operating income (Ebit) up 13% year-over-year to $6.6 billion (operating margins contracted roughly 500 basis points to 39%). Adjusted earnings per share increased by 14% to $2.0.

As we look to the back half of the year and into 2020, it will be interesting to see what effect ad-targeting headwinds have on top-line growth. At the same time, we’ll see if the pace of expense growth starts to abate (or if not, how much further it takes down operating margins).

As CEO Mark Zuckerberg discussed on the first quarter conference call, he realizes that outsized growth in expenses is a relevant consideration for investors (“I’m running a company and you don’t want to have costs growing at a much faster rate than revenues for a long period of time”).

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