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Facebook’s Position Increases in Point72 Asset Management

Highlights of Point72 Asset Management’s Holdings in 4Q14 (Part 9 of 16)

(Continued from Part 8)

Point72 Asset Management and Facebook

Point72 increased its position in Facebook (FB) during 4Q14. The fund added 1,970,800 Facebook shares during 4Q14. The fund held 2,347,000 Facebook shares. It accounted for 1.28% of the fund’s total 4Q14 portfolio.

About Facebook

Facebook is a social networking channel. It had 1.39 billion total users and 890 million daily active users worldwide as of December 2014. The company generates substantial revenue from advertising and fees associated with its payments infrastructure. This enables Facebook users to purchase virtual and digital goods from developers.

In 2014, Facebook acquired WhatsApp and Oculus to improve its next generation of communication and computing platforms.

Mobile is Facebook’s primary growth driver. It’s important to note that 1.19 billion people access the site on mobile devices. The company’s Instagram, Messenger, and WhatsApp crossed 300 million, 500 million, and 700 million monthly active users, respectively.

You can gain exposure to Facebook by investing in the Technology Select Sector SPDR Fund (XLK) and the PowerShares QQQ Trust (QQQ). Facebook accounts for 4.068% and 3.46% of XLK and QQQ, respectively. It also accounts for 4.60% of the iShares US Technology ETF (IYW).

Mobile users are main revenue drivers

During 4Q14, Facebook’s revenue grew 53% YoY (year-over-year) to $3.9 billion. The ad revenue was $3.6 billion. Mobile ad revenue was up 108% to $2.5 billion. Mobile ad revenue accounted for 69% of the total ad revenue—compared to 66% in 3Q14 and 53% in 4Q13. As of December 31, 2014, 745 million people used Facebook daily through mobile devices. This was up 34% YoY.

In 4Q14, Facebook expanded auto play video ads. It had many clients during the holiday season.

According to eMarketer, Facebook’s share of global mobile advertising revenue could increase from just 5% in 2012 to about 22% in 2014. Meanwhile, Google’s (GOOG) (GOOGL) share could decline from 53% in 2012 to 47% by 2014. Even Twitter’s (TWTR) share could increase from 1.5% in 2012 to 2.6% in 2014. Pandora, YP, and Millennial Media’s (MM) shares are expected to decline.

Operating margin declined in 4Q14

GAAP (generally accepted accounting principles) operating margin fell to 29%—compared to 44% in 4Q13. This was due to a rise in stock-based compensation and marketing expenses. It expects operating margins will continue to decline in 2015. The company plans to increase its investments in several areas—like Messenger, WhatsApp, and Search.

GAAP net income was up 34% YoY to $701 million, or $0.25 per diluted share. The free cash flow was $1.07 billion.

Full-year 2014 results

Facebook’s revenue grew 58% to $12.5 billion in 2014. The company generated free cash flow of $3.6 billion. GAAP net income increased 96% to $2.9 billion, or $1.1 per diluted share.

In the next part of this series, we’ll discuss Point72’s position change in General Motors.

Continue to Part 10

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