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On Wednesday night Facebook released bone-crunching second quarter numbers. Revenues increased by 56% to $29 billion, and $28.6 billion of that came from advertising. So yes, this is a social media company that is really an advertising platform. Net income (profit) was $10 billion. I remember when the company listed in 2012 it made no money at all. The shares have been a 10-bagger since then.
Monthly active users on Facebook, WhatsApp and Instagram are now 2.9 billion people, up 7% year-on-year. This company is the whale of social media and that scale represents one of the biggest moats in business history.
The company is in incredible financial shape. It has $64 billion in cash and runs at an operating margin of 43%. It ticks all the boxes, a shareholder's dream.
Facebook's size and power attracts negative attention. Regulators are always on their back, and have threatened to break up the company. We think that is very unlikely to happen, but even if it did, splitting up Instagram, WhatsApp and Facebook might actually unlock value.
Their management team is notoriously cautious about giving forward guidance, but they did warn that profits would not grow as fast for the rest of the year. The share price dropped 4% on the news but not to worry, it's up by 34% so far this year.
