Better-than-expected growth

Facebook Inc. (FB) announced its 4Q14 earnings on January 28. The company’s revenue grew at an impressive year-over-year rate of 53%. This was slightly lower than the previous quarter’s growth rate of 59%.

Following the 4Q14 earnings announcement, Facebook’s stock went up 7% because the company had beaten Wall Street analysts’ estimates for both earnings and revenues.

Facebook stock up 7% after 4Q14 earnings release

As the chart above shows, Facebook maintained strong revenue growth throughout the 2014. Although the company’s revenue growth has slowed slightly over the last three quarters, Facebook was expecting that. Yearly comparisons become difficult with a larger revenue base.

Total fourth-quarter revenue was $3.9 billion, topping analyst estimates of $3.77 billion. Facebook reported earnings per share of $0.54, beating analyst estimates by $0.06. Revenues for the full year 2014 increased 59% to $12.5 billion.

Although exchange rate volatility affected growth outside of the US, Facebook saw healthy gains overall around the world.

Strong revenues and earnings growth have helped Facebook come closer to Google (GOOG)(GOOGL) in the digital advertising market.

Strong advertising revenues

Fourth-quarter advertising revenue increased by 53% to $3.6 billion. Mobile advertising revenue doubled to $2.5 billion, showing 108% growth. Mobile ad revenue contributed 69% of total ad revenue compared to its contribution of 66% during the last quarter. Desktop usage has slowed with the proliferation of mobile device usage, but desktop ad revenue saw a little increase of 1%.

Soaring expenses

Total GAAP (generally accepted accounting principles) expenses for 4Q14 were up 87%. Significant stock-based compensation and amortization expenses related to the WhatsApp acquisition primarily drove this increase. Non-GAAP expenses were up 50% mainly due to increases in headcount-related costs, the cost of revenue, and marketing expenses.

GAAP operating income was down from last year chiefly because of expenses related to large acquisitions. In 2014, Facebook spent $1.8 billion on capital expenditures and generated over $3.6 billion of free cash flow.

Investors can consider ETFs to gain portfolio exposure to Facebook. The Technology Select Sector SPDR ETF (XLK) has Facebook weightage of 4.1%. The PowerShares QQQ Trust, Series 1 (QQQ) has Facebook weightage of 3.57%.

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