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Facebook Reports Third Quarter 2020 Results

·15 min read

MENLO PARK, Calif., Oct. 29, 2020 /PRNewswire/ -- Facebook, Inc. (Nasdaq: FB) today reported financial results for the quarter ended September 30, 2020.

(PRNewsfoto/Facebook)
(PRNewsfoto/Facebook)

"We had a strong quarter as people and businesses continue to rely on our services to stay connected and create economic opportunity during these tough times," said Mark Zuckerberg, Facebook founder and CEO. "We continue to make significant investments in our products and hiring in order to deliver new and meaningful experiences for our community around the world."

Third Quarter 2020 Financial Highlights


Three Months Ended September 30,


Year-over-Year %
Change


In millions, except percentages and per share amounts

2020(1)


2019



Revenue:







Advertising

$

21,221



$

17,383



22%


Other

249



269



(7)%


Total revenue

21,470



17,652



22%


Total costs and expenses

13,430



10,467



28%


Income from operations

$

8,040



$

7,185



12%


Operating margin

37%



41%





Provision for income taxes

$

287



$

1,238



(77)%


Effective tax rate

4%



17%





Net income

$

7,846



$

6,091



29%


Diluted earnings per share (EPS)

$

2.71



$

2.12



28%


_________________________

(1)

Our third quarter 2020 effective tax rate was 4%, which reflects a one-time income tax benefit of $913 million related to the effects of a tax election to capitalize and amortize certain research and development expenses for U.S. income tax purposes. Excluding this tax benefit, our effective tax rate would have been 11 percentage points higher and our diluted EPS would have been $0.31 lower.

Third Quarter 2020 Operational and Other Financial Highlights

  • Facebook daily active users (DAUs) – DAUs were 1.82 billion on average for September 2020, an increase of 12% year-over-year.

  • Facebook monthly active users (MAUs) – MAUs were 2.74 billion as of September 30, 2020, an increase of 12% year-over-year.

  • Family daily active people (DAP) – DAP was 2.54 billion on average for September 2020, an increase of 15% year-over-year.

  • Family monthly active people (MAP) – MAP was 3.21 billion as of September 30, 2020, an increase of 14% year-over-year.

  • Capital expenditures – Capital expenditures, including principal payments on finance leases, were $3.88 billion for the third quarter of 2020.

  • Cash and cash equivalents and marketable securities – Cash and cash equivalents and marketable securities were $55.62 billion as of September 30, 2020.

  • Headcount – Headcount was 56,653 as of September 30, 2020, an increase of 32% year-over-year.

CFO Outlook Commentary

As expected, in the third quarter of 2020, we saw Facebook DAUs and MAUs in the US & Canada decline slightly from the second quarter 2020 levels which were elevated due to the impact of the COVID-19 pandemic. In the fourth quarter of 2020, we expect this trend to continue and that the number of DAUs and MAUs in the US & Canada will be flat or slightly down compared to the third quarter of 2020.

We expect our fourth quarter 2020 year-over-year ad revenue growth rate to be higher than our reported third quarter 2020 rate, driven by continued strong advertiser demand during the holiday season. Additionally, Oculus Quest 2 orders have been strong which should benefit Other Revenue.

Looking ahead to 2021, we continue to face a significant amount of uncertainty.

We believe the pandemic has contributed to an acceleration in the shift of commerce from offline to online, and we experienced increasing demand for advertising as a result of this acceleration. Considering that online commerce is our largest ad vertical, a change in this trend could serve as a headwind to our 2021 ad revenue growth.

In addition, we expect more significant targeting and measurement headwinds in 2021. This includes headwinds from platform changes, notably on Apple iOS 14, as well as those from the evolving regulatory landscape.

There is also continuing uncertainty around the viability of transatlantic data transfers in light of recent European regulatory developments, and like other companies in our industry, we are closely monitoring the potential impact on our European operations as these developments progress.

We expect 2020 total expenses to be in the range of $53-54 billion, narrowed from our prior range of $52-55 billion.

We anticipate that our full-year 2021 total expenses will be in the range of $68-73 billion, driven by continued investments in product development and technical talent, as well as a return to more normal levels of spend in areas like office operations and travel. However, these are preliminary estimates as we have not yet finalized our 2021 budget.

We expect 2020 capital expenditures to be approximately $16 billion, unchanged from our prior outlook. For 2021, we anticipate capital expenditures to be in the range of $21-23 billion, driven by investments in data centers, servers, network infrastructure, and office facilities. Our outlook includes spend that was delayed from 2020 due to the impact of the COVID-19 pandemic on our construction efforts.

We expect our fourth quarter 2020 effective tax rate to be in the mid-teens and our full-year 2021 tax rate to be in the high-teens.

Webcast and Conference Call Information

Facebook will host a conference call to discuss the results at 3 p.m. PT / 6 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 6245509.

Transcripts of conference calls with publishing equity research analysts held today will also be posted to the investor.fb.com website.

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's apps and technologies to connect with friends and family, find communities and grow businesses.

Contacts

Investors:
Deborah Crawford
investor@fb.com / investor.fb.com

Press:
Ryan Moore
press@fb.com / newsroom.fb.com

Forward-Looking Statements

This press release contains forward-looking statements regarding our future business expectations. These forward-looking statements are only predictions and may differ materially from actual results due to a variety of factors including: the impact of the COVID-19 pandemic on our business and financial results; our ability to retain or increase users and engagement levels; our reliance on advertising revenue; our dependency on data signals and mobile operating systems, networks, and standards that we do not control; risks associated with new products and changes to existing products as well as other new business initiatives; our emphasis on community growth and engagement and the user experience over short-term financial results; maintaining and enhancing our brand and reputation; our ongoing privacy, safety, security, and content review efforts; competition; risks associated with government actions that could restrict access to our products or impair our ability to sell advertising in certain countries; litigation and government inquiries; 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 31, 2020, 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, 2020. In addition, please note that the date of this press release is October 29, 2020, 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, 2020 using the prior year's monthly exchange rates for our settlement or billing 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, net; Principal payments on finance leases. We subtract both net purchases of property and equipment and principal payments on finance leases in our calculation of free cash flow because we believe that these two items collectively represent the amount of property and equipment we need to procure to support our business, regardless of whether we procure such property or equipment with a finance lease. 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.

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,



2020


2019


2020


2019


Revenue

$

21,470



$

17,652



$

57,893



$

49,615



Costs and expenses:









Cost of revenue

4,194



3,155



11,482



9,279



Research and development

4,763



3,548



13,240



9,722



Marketing and sales

2,683



2,416



8,310



6,850



General and administrative

1,790



1,348



4,965



8,636



Total costs and expenses

13,430



10,467



37,997



34,487



Income from operations

8,040



7,185



19,896



15,128



Interest and other income, net

93



144



229



515



Income before provision for income taxes

8,133



7,329



20,125



15,643



Provision for income taxes

287



1,238



2,198



4,507



Net income

$

7,846



$

6,091



$

17,927



$

11,136



Earnings per share attributable to Class A and Class B









common stockholders:









Basic

$

2.75



$

2.13



$

6.29



$

3.90



Diluted

$

2.71



$

2.12



$

6.22



$

3.87



Weighted-average shares used to compute earnings per









share attributable to Class A and Class B common









stockholders:









Basic

2,850



2,854



2,850



2,855



Diluted

2,891



2,874



2,883



2,875



Share-based compensation expense included in costs









and expenses:









Cost of revenue

$

116



$

91



$

327



$

287



Research and development

1,297



907



3,557



2,557



Marketing and sales

180



148



516



421



General and administrative

129



103



352



297



Total share-based compensation expense

$

1,722



$

1,249



$

4,752



$

3,562



FACEBOOK, INC.


CONDENSED CONSOLIDATED BALANCE SHEETS


(In millions)


(Unaudited)







September 30,
2020


December 31,
2019


Assets





Current assets:






Cash and cash equivalents

$

11,617



$

19,079




Marketable securities

44,003



35,776




Accounts receivable, net of allowances of $311 and $206 as of September 30, 2020 and








December 31, 2019, respectively

8,024



9,518




Prepaid expenses and other current assets

2,155



1,852





Total current assets

65,799



66,225



Equity investments

6,164



86



Property and equipment, net

42,291



35,323



Operating lease right-of-use assets, net

9,439



9,460



Intangible assets, net

744



894



Goodwill

19,031



18,715



Other assets

2,969



2,673



Total assets

$

146,437



$

133,376










Liabilities and stockholders' equity





Current liabilities:






Accounts payable

$

1,106



$

1,363




Partners payable

800



886




Operating lease liabilities, current

975



800




Accrued expenses and other current liabilities

8,684



11,735




Deferred revenue and deposits

379



269





Total current liabilities

11,944



15,053



Operating lease liabilities, non-current

9,641



9,524



Other liabilities

7,121



7,745





Total liabilities

28,706



32,322



Commitments and contingencies





Stockholders' equity:






Common stock and additional paid-in capital

48,910



45,851




Accumulated other comprehensive income (loss)

308



(489)




Retained earnings

68,513



55,692





Total stockholders' equity

117,731



101,054



Total liabilities and stockholders' equity

$

146,437



$

133,376



FACEBOOK, INC.


CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


(In millions)


(Unaudited)





Three Months Ended
September 30,


Nine Months Ended
September 30,



2020


2019


2020


2019


Cash flows from operating activities









Net income

$

7,846



$

6,091



$

17,927



$

11,136



Adjustments to reconcile net income to net cash provided by









operating activities:









Depreciation and amortization

1,698



1,416



4,999



4,273



Share-based compensation

1,722



1,249



4,752



3,562



Deferred income taxes

(1,506)



175



(816)



358



Other

7



30



56



44



Changes in assets and liabilities:









Accounts receivable

(377)



(328)



1,547



(264)



Prepaid expenses and other current assets

264



(360)



(89)



(527)



Other assets

6





(8)



66



Accounts payable

139



89



39



2



Partners payable

58



39



(100)



59



Accrued expenses and other current liabilities

(258)



457



(3,273)



6,439



Deferred revenue and deposits

112



31



111



82



Other liabilities

117



418



(438)



2,001



Net cash provided by operating activities

9,828



9,307



24,707



27,231



Cash flows from investing activities









Purchases of property and equipment, net

(3,689)



(3,532)



(10,502)



(11,002)



Purchases of marketable securities

(14,130)



(7,397)



(28,193)



(19,152)



Sales of marketable securities

4,398



2,946



9,779



7,402



Maturities of marketable securities

2,857



2,943



10,725



7,048



Purchases of equity investments

(6,020)





(6,302)



(61)



Acquisitions of businesses, net of cash acquired, and purchases of













intangible assets

(12)



(10)



(384)



(63)



Other investing activities, net

(3)





(9)





Net cash used in investing activities

(16,599)



(5,050)



(24,886)



(15,828)



Cash flows from financing activities









Taxes paid related to net share settlement of equity awards

(1,000)



(591)



(2,444)



(1,710)



Repurchases of Class A common stock

(1,725)



(1,148)



(4,343)



(2,906)



Principal payments on finance leases

(189)



(144)



(398)



(411)



Net change in overdraft in cash pooling entities

(8)



(141)



(24)



(260)



Other financing activities, net

10



5



124



14



Net cash used in financing activities

(2,912)



(2,019)



(7,085)



(5,273)



Effect of exchange rate changes on cash, cash equivalents, and













restricted cash

93



(156)



(36)



(174)



Net increase (decrease) in cash, cash equivalents, and restricted cash

(9,590)



2,082



(7,300)



5,956



Cash, cash equivalents, and restricted cash at beginning of the period

21,569



13,998



19,279



10,124



Cash, cash equivalents, and restricted cash at end of the period

$

11,979



$

16,080



$

11,979



$

16,080












Reconciliation of cash, cash equivalents, and restricted cash to









the condensed consolidated balance sheets









Cash and cash equivalents

$

11,617



$

15,979



$

11,617



$

15,979



Restricted cash, included in prepaid expenses and other current













assets

222



7



222



7



Restricted cash, included in other assets

140



94



140



94



Total cash, cash equivalents, and restricted cash

$

11,979



$

16,080



$

11,979



$

16,080



FACEBOOK, INC.


CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


(In millions)


(Unaudited)





Three Months Ended September 30,


Nine Months Ended September 30,



2020


2019


2020


2019


Supplemental cash flow data









Cash paid for income taxes, net

$

1,872



$

832



$

3,122



$

2,528



Non-cash investing activities:









Acquisition of businesses and other investments in

















accrued expenses and other liabilities

$

118



$



$

118



$



Property and equipment in accounts payable and

















accrued expenses and other liabilities

$

2,137



$

1,850



$

2,137



$

1,850



Reconciliation of GAAP to Non-GAAP Results


(In millions, except percentages)


(Unaudited)





Three Months Ended September 30,


Nine Months Ended September 30,



2020


2019


2020


2019


GAAP revenue

$

21,470



$

17,652



$

57,893



$

49,615



Foreign exchange effect on 2020 revenue using 2019 rates

(114)





459





Revenue excluding foreign exchange effect

$

21,356





$

58,352





GAAP revenue year-over-year change %

22%





17%





Revenue excluding foreign exchange effect year-over-











year change %

21%





18%





GAAP advertising revenue

$

21,221



$

17,383



$

56,981



$

48,919



Foreign exchange effect on 2020 advertising revenue











using 2019 rates

(109)





462





Advertising revenue excluding foreign exchange effect

$

21,112





$

57,443





GAAP advertising revenue year-over-year change %

22%





16%





Advertising revenue excluding foreign exchange effect











year-over-year change %

21%





17%














Net cash provided by operating activities

$

9,828



$

9,307



$

24,707



$

27,231



Purchases of property and equipment, net

(3,689)



(3,532)



(10,502)



(11,002)



Principal payments on finance leases

(189)



(144)



(398)



(411)



Free cash flow (1)

$

5,950



$

5,631



$

13,807



$

15,818



_________________________

(1)

Free cash flow in the nine months ended September 30, 2020 reflects the $5.0 billion FTC settlement that was paid in April 2020.

Cision
Cision

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SOURCE Facebook