Blowout Quarter for Facebook
Given the better-than-expected performance in the quarter and our assumption of further operating margin expansion, we're raising our fair value estimate on the wide-moat firm.
Total advertising revenue grew 63% year over year to $6.2 billion, driven by 15% and 17% growth in monthly average users, or MAUs, and daily active users, or DAUs, respectively. Geographically, such growth in ad revenue was led by 69% year-over-year growth in the U.S. and Canada region. Asia was not far behind with a 67% growth rate. Facebook’s mobile users increased by 20% from a year ago, driving mobile revenue higher to represent 84% of total ad revenue. Operating margin expansion was encouraging, along with higher gross margins, while operating expenses declined as a percentage of revenue.
User engagement, which we calculate as DAU/MAU, continued to show strength as it increased nearly 100 basis points from second-quarter 2015. We think the strengthening of user engagement will increase barriers to exit. In addition, user engagement is an indicator of possibly higher return on investment, or ROI, for advertisers. It appears that advertisers recognized this and were willing to pay, as the overall average revenue per user increased 39% from last year.
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