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Facebook’s earnings results deliver the likes

Judging by Facebook’s (NASDAQ: FB) stellar performance post earnings announcement, its second-quarter results didn’t disappoint last night. The company reported revenues of US$1.81 billion, an increase of 53% year over year, translating to a non-GAAP net income increase of 65%, to US$488 million, or US$0.19 cents a share. The analyst consensus was hoping Facebook would earn US$1.62 billion in revenue and bring home US$0.12 a share in earnings.

For the month of June, the average number of daily active users increased by 27% year over year, to 699 million. The social network closed its quarter with 1.15 billion monthly active users, an increase of 21% year over year. Additionally, mobile monthly active users now represent 71% of all Facebook users and, as a percentage of advertising revenue, it accounted for 41%, a strong improvement from the first quarter when mobile only made up 30% of advertising revenue. In other words, Facebook is monetising mobile in a more effective manner.

Healthy vitals

One of the more effective ways to measure the health of Facebook’s business is to look at how its average revenue per user, or ARPU, is faring against monthly active user growth. By comparing these two metrics, you can get a better sense of what’s driving Facebook’s results — user growth or improved monetisation. Ultimately, when user growth begins to slow, user monetisation will become the key driver of the business. Based on 1.15 billion monthly active users, every penny of ARPU generates US$11.5 million in revenue to Facebook’s top line.

On a year-over-year basis, user growth increased by 21%, but worldwide ARPU increased by 25%, to US$1.60, indicating that Facebook is extracting value out of its existing users faster than it is growing its user base. This is a good sign of things to come, and shows that Facebook is figuring out how to more effectively monetise the world’s largest social network.

Slow clap

Thanks to outsized growth in ARPU compared to user growth, investors should be pleased that Facebook’s investments in earning the trust of marketers are beginning to pay off. Additionally, it appears that Facebook has begun to find its stride, easing fears that the company isn’t just a social network, but also a viable business longer term. Throw in the many ways Facebook can improve its existing business, and it’s likely that the company’s earnings potential is still within the early stages.

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More reading

A version of this article, written by Steve Heller, originally appeared on fool.com.

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