Renaissance Technologies exits position in Facebook



Renaissance Technologies and Facebook

Renaissance Technologies has exited its position in Facebook (FB). The investment represented 0.49% of the hedge fund’s overall portfolio in 3Q14. The fund sold shares worth $182 million, as per the latest 13F filings for 4Q14.

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Overview of Facebook

Facebook is a social networking channel with 1.39 billion total users and 890 million daily active users worldwide as of December 2014. The company generates substantial revenue from advertising and fees associated with its payments infrastructure, which enables Facebook users to purchase virtual and digital goods from developers.

In 2014, Facebook acquired WhatsApp and Oculus to improve Facebook’s next generation of communication and computing platforms.

Mobile is the primary driver of Facebook’s growth, with 1.19 billion people accessing the site on mobile devices. The company’s Instagram, Messenger, and WhatsApp crossed 300 million, 500 million, and 700 million monthly active users, respectively.

You can gain exposure to Facebook by investing in the Technology Select Sector SPDR Fund (XLK). Facebook accounts for 3.82% of XLK.

Fourth quarter and full year results

During the fourth quarter of 2014, Facebook’s revenues grew 53% YoY (year-over-year) to $3.9 billion. Ad revenue was $3.6 billion. Mobile ad revenue accounted for 69% of total ad revenue. GAAP (or generally accepted accounting principles) net income was up 34% YoY to $701 million or $0.25 per diluted share. Free cash flow was $1.07 billion.

Facebook’s revenue grew 58% to $12.5 billion in 2014. The company generated free cash flow of $3.6 billion. GAAP net income increased 96% to $2.9 billion or $1.1 per diluted share.

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Facebook shows decline in operating margin for 4Q14

Facebook’s (FB) profitability declined during the fourth quarter. GAAP operating margin fell to 29% compared to 44% in the same period a year ago. This was due to a rise in stock-based compensation and marketing expenses.

Facebook expects the operating margin to decline in 2015 also, as the firm is planning to increase investments in several areas such as Messenger, WhatsApp, and Search. Facebook believes these investments will be profitable and beneficial in the long run and will drive future revenues.

Facebook’s margin decline isn’t a surprise, since Twitter (TWTR) also reported an operating loss of $98 million and a net loss of $125 million in the fourth quarter, representing operating and net loss margins of 20% and 26%. However, Google (GOOG) reported a year-over-year increase of 4.5% in its operating margin to 24.3% in the fourth quarter. This rise was mainly due to a $740 million gain from the sale of the Motorola mobile business.

The Technology Select Sector SPDR ETF (XLK) has a 4.1% exposure to Facebook and the PowerShares QQQ Trust, Series 1 (QQQ) has a 3.6% exposure to Facebook.


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