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Item 7.
Management's Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion of our financial condition and results of operations in conjunction with
our consolidated financial statements and the related notes included in Part II, Item 8, "Financial Statements
and Supplementary Data" of this Annual Report on Form 10-K. In addition to our historical consolidated
financial information, the following discussion contains forward-looking statements that reflect our plans,
estimates, and beliefs. Our actual results could differ materially from those discussed in the forward-looking
statements. Factors that could cause or contribute to these differences include those discussed below and
elsewhere in this Annual Report on Form 10-K, particularly in Part I, Item 1A, "Risk Factors." For a discussion
of limitations in the measurement of certain of our user metrics, see the section entitled "Limitations of Key
Metrics."
Overview
Our mission is to make the world more open and connected. Facebook enables you to express yourself and
connect with the world around you instantly and freely.
We build products that support our mission by creating utility for users, developers, and marketers:
Users. We enable people who use Facebook to stay connected with their friends and family, to discover
what is going on in the world around them, and to share and express what matters to them to the people they care
about.
Developers. We enable developers to use the Facebook Platform to build applications (apps) and websites
that integrate with Facebook to reach our global network of users and to build products that are more
personalized and social.
Marketers. We enable marketers to engage with more than one billion monthly active users (MAUs) on
Facebook or subsets of our users based on information they have chosen to share with us such as their age,
location, gender, or interests. We offer marketers a unique combination of reach, relevance, social context, and
engagement to enhance the value of their ads.
We generate substantially all of our revenue from advertising and from fees associated with our Payments
infrastructure that enables users to purchase virtual and digital goods from our Platform developers. For the year
ended December 31, 2012, we recorded revenue of $5.09 billion, income from operations of $538 million and net
income of $53 million. Total costs and expenses increased 133% compared to revenue growth of 37% due to
significant increases in share-based compensation and related payroll tax expenses for restricted stock units
(RSUs) and increases in headcount for the year ended December 31, 2012. During fiscal 2012, we recognized
$1.72 billion of share-based compensation and related payroll tax expenses. Of these amounts, $1.13 billion was
due to the recognition of share-based compensation and related payroll tax expenses related to RSUs granted
prior to January 1, 2011 (Pre-2011 RSUs) triggered by the completion of our initial public offering (IPO) in May
2012. Our effective tax rate for the year ended December 31, 2012 has exceeded the U.S. statutory rate primarily
due to the impact of non-deductible share-based compensation and losses arising outside the United States in
jurisdictions where we do not receive a tax benefit.
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