10-QPeriod: Q2 FY2019

Meta Platforms, Inc. Quarterly Report for Q2 Ended Jun 30, 2019

Filed July 25, 2019For Securities:META

Summary

Meta Platforms, Inc. (META) reported strong revenue growth for the second quarter and first six months of 2019, driven primarily by its advertising business. Total revenue increased by 28% year-over-year in Q2 2019 to $16.89 billion, with advertising revenue accounting for the vast majority. Despite this top-line growth, net income saw a significant decrease compared to the prior year, primarily due to a substantial legal accrual related to a settlement with the FTC, which included a $5 billion penalty, and a $1.11 billion income tax expense related to the Altera court case. The company continues to invest heavily in its core products (Facebook, Instagram) and long-term initiatives like AI and VR/AR. This investment, coupled with increased operating expenses, led to a significant rise in total costs and expenses, outpacing revenue growth in Q2 2019. The company highlighted ongoing user growth, with DAUs and MAUs increasing by 8% year-over-year, though growth is expected to slow. Investors should note the impact of significant legal and regulatory settlements on profitability, alongside continued strong operational execution in revenue generation and user engagement.

Financial Highlights

49 data points
Beta

Revenue

$16.89B

80.4% Gross Margin

Net Income

$2.62B

15.5% Net Margin

EPS (Diluted)

$0.91

Total Assets

$117.01B

Cash & Equivalents

$14.00B

Free Cash Flow

$4.98B

Financial Statements
Beta
Revenue$16.89B
Cost of Revenue$3.31B
Gross Profit$13.58B
R&D Expenses$3.31B
Operating Expenses$12.26B
Operating Income$4.63B
Net Income$2.62B
EPS (Basic)$0.92
EPS (Diluted)$0.91
Shares Outstanding (Basic)2.85B
Shares Outstanding (Diluted)2.88B

Key Highlights

  • 1Total revenue increased 28% year-over-year to $16.89 billion in Q2 2019, driven by a 28% increase in advertising revenue.
  • 2Net income decreased significantly to $2.62 billion in Q2 2019 from $5.11 billion in Q2 2018, largely due to a $5 billion FTC settlement penalty and a $1.11 billion income tax expense from the Altera court ruling.
  • 3Daily Active Users (DAUs) grew 8% year-over-year to 1.59 billion, and Monthly Active Users (MAUs) grew 8% year-over-year to 2.41 billion as of June 30, 2019.
  • 4Total costs and expenses increased significantly to $12.26 billion in Q2 2019 from $7.37 billion in Q2 2018, reflecting increased investments and operational expenses.
  • 5Cash and cash equivalents and marketable securities stood at $48.60 billion as of June 30, 2019, indicating a strong liquidity position.
  • 6Capital expenditures were $3.78 billion in Q2 2019, reflecting ongoing investment in infrastructure.
  • 7The company recorded a $5 billion accrual for the FTC settlement, significantly impacting current period expenses and cash flow.

Frequently Asked Questions

Meta's revenue growth in Q2 2019 was primarily driven by its advertising business. Advertising revenue increased by 28% year-over-year, contributing the vast majority of the total revenue.

The significant decrease in net income was largely due to two major one-time items: a $5 billion penalty from a settlement with the FTC related to privacy and data practices, and a $1.11 billion income tax expense resulting from a court ruling in the Altera Corp. v. Commissioner case concerning share-based compensation in cost-sharing arrangements. These substantial charges outweighed the revenue gains.

Meta has entered into settlements with both the FTC and the SEC. The FTC settlement requires a $5 billion penalty and significant enhancements to its privacy compliance and oversight practices, including increased management and board oversight, operational requirements, and regular compliance certifications. The SEC settlement involves a $100 million penalty. These settlements are pending federal court approval.

Meta anticipates continued significant year-over-year expense growth in 2019, driven by investments in expanding data center capacity, network infrastructure, office facilities, headcount growth, privacy and safety initiatives, marketing, video content, and long-term technology projects like AI and VR/AR. Expense growth is expected to outpace revenue growth for the remainder of 2019.