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Exhibit

Facebook Reports Second Quarter 2016 Results
 
MENLO PARK, Calif. – July 27, 2016 – Facebook, Inc. (NASDAQ: FB) today reported financial results for the quarter ended June 30, 2016.

"Our community and business had another good quarter," said Mark Zuckerberg, Facebook founder and CEO. "We're particularly pleased with our progress in video as we move towards a world where video is at the heart of all our services."

Second Quarter 2016 Financial Highlights*
 
Three Months Ended June 30,
 
Year-over-Year % Change
In millions, except percentages and per share amounts
2016
 
2015
 
Revenue:
 
 
 
 
 
   Advertising
$
6,239

 
$
3,827

 
63
 %
   Payments and other fees
197

 
215

 
(8
)%
Total revenue
6,436

 
4,042

 
59
 %
Total costs and expenses
3,690

 
2,769

 
33
 %
Income from operations
$
2,746

 
$
1,273

 
116
 %
Operating margin
43
%
 
31
%
 

Provision for income taxes
711

 
 
 

Effective tax rate
26
%
 
 
 


Net income
$
2,055

 
$
719

 
186
 %
Diluted Earnings per Share (EPS)
$
0.71

 
$
0.25

 
184
 %
*
The information in the Second Quarter 2016 Financial Highlights table is presented in accordance with generally accepted accounting principles in the United States (GAAP). For non-GAAP financial information, see the table below titled "Reconciliation of GAAP to Non-GAAP Results."

Second Quarter 2016 Operational Highlights

Daily active users (DAUs) – DAUs were 1.13 billion on average for June 2016, an increase of 17% year-over-year.
Mobile DAUs – Mobile DAUs were 1.03 billion on average for June 2016, an increase of 22% year-over-year.
Monthly active users (MAUs) – MAUs were 1.71 billion as of June 30, 2016, an increase of 15% year-over-year.
Mobile MAUs – Mobile MAUs were 1.57 billion as of June 30, 2016, an increase of 20% year-over-year.

Second Quarter 2016 Other Financial Highlights

Mobile advertising revenue – Mobile advertising revenue represented approximately 84% of advertising revenue for the second quarter of 2016, up from approximately 76% of advertising revenue in the second quarter of 2015.
Capital expenditures – Capital expenditures for the second quarter of 2016 were $995 million.
Cash and cash equivalents and marketable securities – Cash and cash equivalents and marketable securities were $23.29 billion at the end of the second quarter of 2016.



1





Webcast and Conference Call Information
 
Facebook will host a conference call to discuss the results at 2 p.m. PT / 5 p.m. ET today. The live webcast of Facebook's earnings release 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 41929608.

About Facebook

Founded in 2004, Facebook’s mission is to give people the power to share and make the world more open and connected. People use Facebook to stay connected with friends and family, to discover what’s going on in the world, and to share and express what matters to them.

Contacts

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

Press:
Vanessa Chan
press@fb.com / newsroom.fb.com

2



Forward Looking Statements

This press release contains forward-looking statements regarding our future business expectations, which are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are only predictions and may differ materially from actual results due to a variety of factors including: our ability to retain or increase users and engagement levels; our reliance on advertising revenue; our dependency on mobile operating systems, networks, and standards that we do not control; risks associated with new product development and their introduction as well as other new business initiatives; our emphasis on user growth and engagement and the user experience over short-term financial results; competition; litigation; 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 April 28, 2016, 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 June 30, 2016. In addition, please note that the date of this press release is July 27, 2016, 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 GAAP, we use the following non-GAAP financial measures: revenue excluding foreign exchange effect and advertising revenue excluding foreign exchange effect; non-GAAP costs and expenses; non-GAAP income from operations; non-GAAP net income; non-GAAP diluted shares; non-GAAP diluted earnings per share; non-GAAP operating margin; non-GAAP effective tax rate; 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 particular, many of the adjustments to our GAAP financial measures reflect the exclusion of items, specifically amortization of intangible assets, share-based compensation expense, and payroll tax related to share-based compensation expense, and the related income tax effects of the aforementioned exclusions, that are recurring and will be reflected in our financial results for the foreseeable future. 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 one or more of our non-GAAP financial measures:
Amortization of intangible assets. We amortize intangible assets acquired in connection with acquisitions. We exclude these amortization expenses because we do not believe these expenses are reflective of ongoing operating results in the period. These amounts arise from our prior acquisitions and have no direct correlation to the operation of our business.

3



Share-based compensation expense. We exclude share-based compensation expense because we believe that the non-GAAP financial measures excluding this item provide meaningful supplemental information regarding operational performance. In particular, because of varying available valuation methodologies, subjective assumptions and the variety of award types that companies can use under FASB ASC 718, we believe that providing non-GAAP financial measures that exclude this expense allows investors to make more meaningful comparisons between our operating results and those of other companies. Accordingly, we believe that excluding this expense provides investors and management with greater visibility to the underlying performance of our business operations, facilitates comparison of our results with other periods, and may also facilitate comparison with the results of other companies in our industry.
Payroll tax expense related to share-based compensation. We exclude payroll tax expense related to share-based compensation expense because, without excluding these tax expenses, investors would not see the full effect that excluding share-based compensation expense had on our operating results. These expenses are tied to the exercise or vesting of underlying equity awards and the price of our common stock at the time of vesting or exercise, which factors may vary from period to period independent of the operating performance of our business. Similar to share-based compensation expense, we believe that excluding this payroll tax expense provides investors and management with greater visibility to the underlying performance of our business operations and facilitates comparison with other periods as well as the results of other companies.
Income tax effect of amortization of intangible assets, share-based compensation and related payroll tax expenses. We believe excluding the income tax effect of non-GAAP adjustments assists investors and management in understanding the tax provision related to those adjustments and provides useful supplemental information regarding the underlying performance of our business operations.
Foreign exchange effect on revenue. We translated revenue for the three and six months ended June 30, 2016 using the prior year's monthly exchange rates for our settlement 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. We subtract purchases of property and equipment in our calculation of free cash flow because we believe that this methodology can provide useful supplemental information to help investors better understand underlying trends in our business.
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.

4



FACEBOOK, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In millions, except for per share amounts)
(Unaudited)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
Revenue
$
6,436

 
$
4,042

 
$
11,818

 
$
7,586

Costs and expenses:
 
 
 
 
 
 
 
Cost of revenue
916

 
668

 
1,754

 
1,323

Research and development
1,463

 
1,170

 
2,806

 
2,231

Marketing and sales
899

 
626

 
1,726

 
1,247

General and administrative
412

 
305

 
778

 
579

Total costs and expenses
3,690

 
2,769

 
7,064

 
5,380

Income from operations
2,746

 
1,273

 
4,754

 
2,206

Interest and other income/(expense), net
20

 

 
78

 
(1
)
Income before provision for income taxes
2,766

 
1,273

 
4,832

 
2,205

Provision for income taxes
711

 
554

 
1,267

 
974

Net income
$
2,055

 
$
719

 
$
3,565

 
$
1,231

Less: Net income attributable to participating securities
7

 
4

 
12

 
7

Net income attributable to Class A and Class B common stockholders
$
2,048

 
$
715

 
$
3,553

 
$
1,224

Earnings per share attributable to Class A and Class B common stockholders:
 
 
 
 
 
 
 
Basic
$
0.72

 
$
0.26

 
$
1.25

 
$
0.44

Diluted
$
0.71

 
$
0.25

 
$
1.23

 
$
0.43

Weighted average shares used to compute earnings per share attributable to Class A and Class B common stockholders:
 
 
 
 
 
 
 
Basic
2,856

 
2,796

 
2,850

 
2,790

Diluted
2,904

 
2,850

 
2,896

 
2,844

Share-based compensation expense included in costs and expenses:
 
 
 
 
 
 
 
Cost of revenue
$
28

 
$
21

 
$
50

 
$
38

Research and development
623

 
603

 
1,209

 
1,169

Marketing and sales
93

 
82

 
175

 
154

General and administrative
61

 
57

 
118

 
105

Total share-based compensation expense
$
805

 
$
763

 
$
1,552

 
$
1,466

Payroll tax expenses related to share-based compensation included in costs and expenses:
 
 
 
 
 
 
 
Cost of revenue
$
1

 
$
1

 
$
3

 
$
2

Research and development
14

 
7

 
43

 
24

Marketing and sales
2

 
2

 
7

 
6

General and administrative
3

 
2

 
8

 
5

Total payroll tax expenses related to share-based compensation
$
20

 
$
12

 
$
61

 
$
37

Amortization of intangible assets included in costs and expenses:
 
 
 
 
 
 
 
Cost of revenue
$
54

 
$
45

 
$
98

 
$
88

Research and development
9

 
10

 
18

 
20

Marketing and sales
108

 
102

 
212

 
204

General and administrative
22

 
23

 
45

 
47

Total amortization of intangible assets
$
193

 
$
180

 
$
373

 
$
359


5



FACEBOOK, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions)
(Unaudited)
 
 
 
June 30, 2016
 
December 31, 2015
Assets
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
$
5,108

 
$
4,907

 
Marketable securities
18,185

 
13,527

 
Accounts receivable, net of allowances for doubtful accounts of $67 and $68 as of June 30, 2016 and December 31, 2015, respectively
2,801

 
2,559

 
Prepaid expenses and other current assets
916

 
659

 
 
Total current assets
27,010

 
21,652

Property and equipment, net
7,104

 
5,687

Intangible assets, net
2,879

 
3,246

Goodwill
18,043

 
18,026

Other assets
703

 
796

Total assets
$
55,739

 
$
49,407

 
 
 
 
 
 
Liabilities and stockholders' equity
 
 
 
Current liabilities:
 
 
 
 
Accounts payable
$
130

 
$
196

 
Partners payable
232

 
217

 
Accrued expenses and other current liabilities
1,770

 
1,449

 
Deferred revenue and deposits
79

 
56

 
Current portion of capital lease obligations

 
7

 
 
Total current liabilities
2,211

 
1,925

Capital lease obligations, less current portion

 
107

Other liabilities
3,145

 
3,157

 
 
Total liabilities
5,356

 
5,189

Stockholders' equity
 
 
 
 
Common stock and additional paid-in capital
37,405

 
34,886

 
Accumulated other comprehensive loss
(374
)
 
(455
)
 
Retained earnings
13,352

 
9,787

 
 
Total stockholders' equity
50,383

 
44,218

Total liabilities and stockholders' equity
$
55,739

 
$
49,407




6



FACEBOOK, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
Cash flows from operating activities
 
 
 
 
 
 
 
Net income
$
2,055

 
$
719

 
$
3,565

 
$
1,231

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
 
 
 
Depreciation and amortization
585

 
459

 
1,137

 
916

Share-based compensation
805

 
763

 
1,552

 
1,457

Deferred income taxes
(77
)
 
(66
)
 
(142
)
 
(289
)
Tax benefit from share-based award activity
467

 
386

 
961

 
809

Excess tax benefit from share-based award activity
(467
)
 
(386
)
 
(961
)
 
(809
)
Other
6

 
1

 
19

 
7

Changes in assets and liabilities:
 
 
 
 
 
 
 
Accounts receivable
(492
)
 
(282
)
 
(225
)
 
(198
)
Prepaid expenses and other current assets
(154
)
 
(47
)
 
(260
)
 
(90
)
Other assets
(11
)
 
7

 
4

 
(25
)
Accounts payable
(41
)
 
31

 
(39
)
 
16

Partners payable
17

 
(6
)
 
14

 
(19
)
Accrued expenses and other current liabilities
438

 
107

 
422

 
241

Deferred revenue and deposits
25

 
(7
)
 
23

 
(17
)
Other liabilities
42

 
201

 
111

 
350

Net cash provided by operating activities
3,198

 
1,880

 
6,181

 
3,580

Cash flows from investing activities
 
 
 
 
 
 
 
Purchases of property and equipment
(995
)
 
(549
)
 
(2,127
)
 
(1,051
)
Purchases of marketable securities
(6,509
)
 
(2,505
)
 
(9,635
)
 
(5,560
)
Sales of marketable securities
2,145

 
2,118

 
4,158

 
2,726

Maturities of marketable securities
366

 
376

 
903

 
715

Acquisitions of businesses, net of cash acquired, and purchases of intangible assets
(19
)
 
(25
)
 
(20
)
 
(282
)
Change in restricted cash and deposits
41

 
21

 
74

 
44

Net cash used in investing activities
(4,971
)
 
(564
)
 
(6,647
)
 
(3,408
)
Cash flows from financing activities
 
 
 
 
 
 
 
Principal payments on capital lease and other financing obligations

 
(37
)
 
(312
)
 
(84
)
Excess tax benefit from share-based award activity
467

 
386

 
961

 
809

Other financing activities, net
4

 
(7
)
 
6

 
(12
)
Net cash provided by financing activities
471

 
342

 
655

 
713

Effect of exchange rate changes on cash and cash equivalents
(46
)
 
46

 
12

 
(77
)
Net (decrease) increase in cash and cash equivalents
(1,348
)
 
1,704

 
201

 
808

Cash and cash equivalents at beginning of period
6,456

 
3,419

 
4,907

 
4,315

Cash and cash equivalents at end of period
$
5,108

 
$
5,123

 
$
5,108

 
$
5,123



7



FACEBOOK, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
Supplemental cash flow data
 
 
 
 
 
 
 
Cash paid during the period for:
 
 
 
 
 
 
 
Interest
$

 
$
2

 
$
11

 
$
5

Income taxes, net
$
237

 
$
40

 
$
407

 
$
159

Non-cash investing and financing activities:
 
 
 
 
 
 
 
Net change in accounts payable, accrued expenses and other current liabilities, and other liabilities related to property and equipment additions
$
37

 
$
8

 
$
89

 
$
194

Promissory note payable issued in connection with an acquisition
$

 
$

 
$

 
$
198



8



Reconciliation of GAAP to Non-GAAP Results
(In millions, except percentages and per share amounts)
(Unaudited)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
GAAP revenue
$
6,436

 
$
4,042

 
$
11,818

 
$
7,586

   Foreign exchange effect on 2016 revenue using 2015 rates
1

 
 
 
203

 
 
Revenue excluding foreign exchange effect
$
6,437

 
 
 
$
12,021

 
 
GAAP revenue year-over-year change %
59
%
 
 
 
56
%
 
 
Revenue excluding foreign exchange effect year-over-year change %
59
%
 
 
 
58
%
 
 
GAAP advertising revenue
$
6,239

 
$
3,827

 
$
11,440

 
$
7,144

   Foreign exchange effect on 2016 advertising revenue using 2015 rates
1

 
 
 
203

 
 
Advertising revenue excluding foreign exchange effect
$
6,240

 
 
 
$
11,643

 
 
GAAP advertising revenue year-over-year change %
63
%
 
 
 
60
%
 
 
Advertising revenue excluding foreign exchange effect year-over-year change %