The following commentary was originally sent to Action Alerts PLUSsubscribers on at 5:22 p.m., July 27, and posted on Real Money Thursday, July 28.
Herculean hurdles can only be cleared by heroic leaps. In poetic justice deserving of a Grecian epic, Facebook delivered an earnings beat for the history books, delivering simply spectacular second-quarter results, with earnings of 95 cents per share crushing consensus by 15 cents, sales of $6.44 billion (up 49% year over year) toppling $6 billion consensus, along with myriad active-user growth metrics, all of which exceeded even the highest buy-side expectations.
Ongoing user growth and even-higher engagement levels helped drive active-user growth; increasing monetization -- driven almost entirely by mobile ad revenue growth of 81% -- and producing accelerating sales that, combined with operating, helped drive earnings.
The company's 1.7 billion active users are empowered by its powerful ecosystem, which includes Instagram (which surpassed 500 million active users recently), Messenger and WhatsApp (each with over 1 billion active users), fuels the powerful flywheel effect.
Staring down the barrel of sky-high expectations -- shares hit all time-highs again Wednesday ahead of the print -- along with mounting concerns around competition (the most vocal of which projected by famous short-seller Andrew Left), the company's jaw-dropping results across the aboard leaves little open to interpretation. In fact, the results quite literally speak for themselves, and we are thrilled to witness our second-largest portfolio position deliver such exceptional results.
Within the quarter, ad revenue of $6.2 billion marked a growth acceleration to 63% year over year vs. 57% in the prior quarter, well above consensus for $5.8 billion. This, combined with 58.5% operating margins that were also above consensus, helped fuel earnings growth. The company's daily active users (DAUs) of 1.13 billion represented a 17% year-over-year increase, while mobile DAUs crossed the 1 billion threshold, increasing 22% year over year.
Given Facebook's growth drivers are accelerating, we believe concerns over user engagement and other social competitors are entirely overblown, as few companies have Facebook's combination of scale, unrivaled strategic positioning, the sheer breadth and diversity of its platform, all within the context of what remains an "early innings" growth story, however difficult to believe.
If anyone needed more reasons to own the name, consider two incremental data points/color:
Average revenue per user (ARPU) increased 15% sequentially worldwide, to $3.82 from $3.52 in 1Q. Higher in every major region for the company.
CFO David Wehner indicated in comments that time spent per DAU is growing by double digits.
Bottom line: Facebook has mastered how to advertise on mobile and social effectively and profitably while maintaining the incredible user experience. The balance is key in this business in order to keep both users and advertisers happy. Facebook has put together a team that can cater to both sides of the spectrum. What a glorious time to be a Facebook shareholder, indeed.
That Sound You Hear Is Jaws Dropping Because of Facebook's Earnings
Action Alerts PLUS, which Cramer and Mohr co-manage as a charitable trust, is long FB.