Facebook : Q3 2021 Earnings

Facebook Reports Third Quarter 2021 Results

Announces New Financial Reporting Segment Structure Beginning in Fourth Quarter 2021

MENLO PARK, Calif. - October 25, 2021 - Facebook, Inc. (Nasdaq: FB) today reported financial results for the quarter ended September 30, 2021.

"We made good progress this quarter and our community continues to grow," said Mark Zuckerberg, Facebook founder and CEO. "I'm excited about our roadmap, especially around creators, commerce, and helping to build the metaverse."

Third Quarter 2021 Financial Highlights

		Three Months Ended September 30,		Year-over-Year %
In millions, except percentages and per share amounts		2021			2020(1)
				Change
Revenue:
Advertising	$	28,276	$	21,221	33%
Other		734			249	195%
Total revenue		29,010			21,470	35%
Total costs and expenses		18,587			13,430	38%
Income from operations	$	10,423	$	8,040	30%
Operating margin		36 %			37 %
Provision for income taxes	$	1,371	$	287	378%
Effective tax rate		13 %			4 %
Net income	$	9,194	$	7,846	17%
Diluted earnings per share (EPS)	$	3.22	$	2.71	19%

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1. Our third quarter 2020 effective tax rate was 4%, which reflects a one-time income tax benefit of $913 million related to the effects of a tax election to capitalize and amortize certain research and development expenses for U.S. income tax purposes. Excluding this tax benefit, our effective tax rate would have been 11 percentage points higher and our diluted EPS would have been $0.31 lower.

Third Quarter 2021 Operational and Other Financial Highlights

• Facebook daily active users (DAUs) - DAUs were 1.93 billion on average for September 2021, an increase of 6% year-over-year.
• Facebook monthly active users (MAUs) - MAUs were 2.91 billion as of September 30, 2021, an increase of 6% year-over-year.
• Family daily active people (DAP) - DAP was 2.81 billion on average for September 2021, an increase of 11% year-over-year.
• Family monthly active people (MAP) - MAP was 3.58 billion as of September 30, 2021, an increase of 12% year-over-year.
• Capital expenditures - Capital expenditures, including principal payments on finance leases, were $4.54 billion for the third quarter of 2021.
• Share repurchases - We repurchased $14.37 billion of our Class A common stock in the third quarter and had $7.97 billion remaining on our prior share repurchase authorization as of September 30, 2021. We also announced today a $50 billion increase in our share repurchase authorization.
• Cash and cash equivalents and marketable securities - Cash and cash equivalents and marketable securities were $58.08 billion as of September 30, 2021.
• Headcount - Headcount was 68,177 as of September 30, 2021, an increase of 20% year-over-year.

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CFO Outlook Commentary

Starting with our results for the fourth quarter of 2021, we plan to break out Facebook Reality Labs, or FRL, as a separate reporting segment. As we have discussed, we are dedicating significant resources toward our augmented and virtual reality products and services, which are an important part of our work to develop the next generation of online social experiences. The new segment disclosures will provide additional information on the performance of FRL and the investments we are making.

Under this reporting structure, we will provide revenue and operating profit for two segments: The first segment, Family of Apps, will include Facebook, Instagram, Messenger, WhatsApp and other services. The second segment, Facebook Reality Labs, will include augmented and virtual reality related hardware, software and content. We expect our investment in Facebook Reality Labs to reduce our overall operating profit in 2021 by approximately $10 billion. We are committed to bringing this long-term vision to life and we expect to increase our investments for the next several years.

Ahead of the fourth quarter earnings call, we will share additional details about the reporting format of our segmented financials.

We expect fourth quarter 2021 total revenue to be in a range of $31.5 billion to $34 billion. Our outlook reflects the significant uncertainty we face in the fourth quarter in light of continued headwinds from Apple's iOS 14 changes, and macroeconomic and COVID-related factors. In addition, we expect non-ads revenue to be down year-over-year in the fourth quarter as we lap the strong launch of Quest 2 during last year's holiday shopping season.

As previously noted, we also continue to monitor developments regarding the viability of transatlantic data transfers and their potential impact on our European operations.

We expect 2021 total expenses to be in the range of $70-71 billion, updated from our prior outlook of $70-73 billion. We anticipate our full-year 2022 total expenses will be in the range of $91-97 billion, driven by investments in technical and product talent and infrastructure-related costs.

We expect 2021 capital expenditures to be approximately $19 billion, updated from our prior estimate of $19-21 billion. For 2022, we expect capital expenditures to be in the range of $29-34 billion, driven by our investments in data centers, servers, network infrastructure, and office facilities.

We expect our fourth quarter 2021 tax rate to be in the high-teens. Absent any changes to U.S. tax law, we would expect our full-year tax rate in 2022 to be similar to the full-year 2021 rate.

Please note that our outlook for 2022 expenses, capital expenditures and tax rate are preliminary estimates as we have not finalized our 2022 budget.

New Financial Reporting Segment Structure

Beginning in the fourth quarter of 2021, we will implement a new financial reporting segment structure with the following two reportable segments:

• Family of Apps (FoA), which includes Facebook, Instagram, Messenger, WhatsApp and other services.
• Facebook Reality Labs (FRL), which includes augmented and virtual reality related consumer hardware, software and content.

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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 conference 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 about.fb.com/news/ websites as well as Mark Zuckerberg's Facebook Page (https://www.facebook.com/zuck) and Instagram account (https:// www.instagram.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 [phone] or [phone], conference ID 21997795.

Transcripts of conference calls with publishing equity research analysts held today will also be posted to the investor.fb.com website.

About Facebook

Founded in 2004, Facebook's mission is to give people the power to build community and bring the world closer together. People use Facebook's apps and technologies to connect with friends and family, find communities and grow businesses.

Contacts

Investors: Deborah Crawford [e-mail]/ investor.fb.com

Press:

Ryan Moore

[e-mail]/ about.fb.com/news/

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Forward-Looking Statements

This press release contains forward-looking statements regarding our future business plans and expectations. These forward-looking statements are only predictions and may differ materially from actual results due to a variety of factors including: the impact of the COVID-19 pandemic on our business and financial results; our ability to retain or increase users and engagement levels; our reliance on advertising revenue; our dependency on data signals and mobile operating systems, networks, and standards that we do not control; risks associated with new products and changes to existing products as well as other new business initiatives; our emphasis on community growth and engagement and the user experience over short-term financial results; maintaining and enhancing our brand and reputation; our ongoing privacy, safety, security, and content review efforts; competition; risks associated with government actions that could restrict access to our products or impair our ability to sell advertising in certain countries; litigation and government inquiries; 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 July 29, 2021, 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 September 30, 2021. In addition, please note that the date of this press release is October 25, 2021, 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 generally accepted accounting principles in the United States (GAAP), we use the following non-GAAP financial measures: revenue excluding foreign exchange effect, advertising revenue excluding foreign exchange effect 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 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 our non-GAAP financial measures:

Foreign exchange effect on revenue. We translated revenue for the three and nine months ended September 30, 2021 using the prior year's monthly exchange rates for our settlement or billing 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; Principal payments on finance leases. We subtract both purchases of property and equipment and principal payments on finance leases in our calculation of free cash flow because we believe that these two items collectively represent the amount of property and equipment we need to procure to support our business, regardless of whether we procure such property or equipment with a finance lease. We believe that this methodology can provide useful supplemental information to help investors better understand underlying trends in our business. Free cash flow is not intended to represent our residual cash flow available for discretionary expenditures.

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.

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FACEBOOK, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In millions, except for per share amounts)

(Unaudited)

	Three Months Ended September 30,	Nine Months Ended September 30,
		2021			2020			2021			2020
Revenue	$	29,010	$	21,470		$	84,258	$	57,893
Costs and expenses:
Cost of revenue		5,771			4,194			16,301			11,482
Research and development		6,316			4,763			17,609			13,240
Marketing and sales		3,554			2,683			9,656			8,310
General and administrative		2,946			1,790			6,524			4,965
Total costs and expenses		18,587			13,430			50,090			37,997
Income from operations		10,423			8,040			34,168			19,896
Interest and other income, net		142			93			413			229
Income before provision for income taxes		10,565			8,133			34,581			20,125
Provision for income taxes		1,371			287			5,496			2,198
Net income	$	9,194	$	7,846		$	29,085	$	17,927
Earnings per share attributable to Class A and Class B
common stockholders:
Basic	$	3.27	$	2.75		$	10.27	$	6.29
Diluted	$	3.22	$	2.71		$	10.11	$	6.22
Weighted-average shares used to compute earnings per
share attributable to Class A and Class B common
stockholders:
Basic		2,814			2,850			2,832			2,850
Diluted		2,859			2,891			2,876			2,883
Share-based compensation expense included in costs
and expenses:
Cost of revenue	$	147	$	116		$	428	$	327
Research and development		1,849			1,297			5,224			3,557
Marketing and sales		218			180			631			516
General and administrative		165			129			474			352
Total share-based compensation expense	$	2,379	$	1,722		$	6,757	$	4,752

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