On Wednesday shares of Facebook surged as high as 9% in after-hours trade, up to $118.78 per share. The reason for this is because the company reported earnings which beat analysts’ expectations. It has come a long way since when it first held its IPO back in May of 2012. Since then the company has made all the right moves by building shareholder value. One of the ways this was accomplished was by acquiring companies that helped to expand the social network platform. As seen in today’s report, together with all prior earnings, Facebook’s risky bets paid off.

Earnings Above And Beyond

Facebook reported earnings that not only beat expectations, but were way above consensus. It reported earnings of $0.77 per share on revenue of $5.38 billion. Analysts were only expecting the company to report earnings of $0.62 per share on revenue of $5.26 billion. That is quite a beat in earnings, especially for the fact that Facebook posted an EPS number which was 10% higher than the highest analyst estimate. This type of earnings report is bullish for the company going forward. The key question now is “ Can Facebook sustain such growth for the rest of the year?”. As long as the company continues to improve its advertising metrics, and boost its user base higher it should be able to do just that.

User Growth Is Higher

Facebook has done an extraordinary job in building its company. It has even managed to do well continuing to grow users, thanks to its one of many acquisitions. The user growth can be seen in a very important metric, known as monthly active users or MAUs. The number of MAUs Facebook reported was 1.65 billion, which was a beat compared to analysts only expecting 1.63 billion. Why is such a metric important for the company? The more active users there are, the higher probability there is to profit from them. It is no secret that Facebook earns a majority of its revenue from advertisements. The more users there are to monetize, the greater return there is in terms of profit. It is safe to say that mobile phone usage has been growing steadily. Well, Facebook performed well in the mobile arena as well when it comes to MAUs. Mobile MAUs increased by 21% year over year to 1.51 billion. This easily beat analysts expecting mobile MAUs to come in at only 1.48 billion. As mentioned before MAUs translate into advertising revenue, and that is exactly what happened this quarter. The company noted that while many analysts predicted revenue growth to be only at 48% year over year, it had obtained 52%. It is quite hard for a company like the size of Facebook to grow that much over a one year period, but it is still at the top of its game. Why is mobile advertising revenue important? Mobile advertising accounted for approximately 82% of total ad revenue for the quarter. Therefore a dip in mobile advertising, could eventually lead to a falter in earnings.

Surprising Move

The CEO of Facebook, Mark Zuckerberg, has been doing a pretty good job leading the company along the right path. He wants to make sure it stays that way, so along with earnings the company announced that it wants to propose an amendment to create new class C shares. The company’s reasoning can be best described by this quote:

“We’re focused on the long term, and that’s the main reason for today’s proposal,” Zuckerberg said at the top of the company’s earnings call. “Facebook has always been a founder-led company so we can focus on our mission and build long-term value.”

It is imperative for the company to pass such a measure. Doing so will allow Marck Zuckerberg to maintain controlling shares of the company, in the event he sells some. Such a move will not come easy, because Facebook must seek shareholder approval at the upcoming June meeting. Only then can it enact the new class C shares for distribution.