Take-aways from Facebook’s quarterly report

This post will be about what I took away from reading Facebook’s quarterly report, presentation and earning call transcript.

  • There are 2.7 billion people using Facebook, Instagram, WhatsApp or Messenger each month with more than 2.1 billion people using at least one every day.
  • Stories have more than 500 million actives every day across all platforms
  • Mobile ad revenue by 30% year over year and made up of 93% of Facebook’s revenue this quarter
  • 3 million advertisers use Stories Ads
  • Interactive Stories Ads was introduced last month
  • Facebook daily active users reached 1.56 billion with growth in India, Indonesia and Philippines leading the way. I wonder how this number relates to the 2.7 billion figure mentioned in the first bullet. For instance, I use all the apps from Facebook almost on a daily basis. Will I count as one or four users?
  • “The average price per ad decreased 4% and the number of ad impressions served across our services increased 32%”
  • “Payments and Other Fees revenue was $165 million, down 4% year-over-year and down 40% from Q4 which benefitted from holiday sales of Oculus and Portal.”
  • “Turning now to expenses. Total expenses were $11.8 billion, up 80%. This includes a $3 billion accrual taken in connection with the inquiry of the Federal Trade Commission into our platform and user data practices. This matter remains unresolved, and we estimate that the associated range of loss is between $3 billion and $5 billion. Absent this accrual our total expense growth rate would have been 46 percentage points lower. Operating income was $3.3 billion representing a 22% operating margin. Absent the accrual, operating margin would have been 20 percentage points higher.”

Daily Active Users YoY Growth

Source: Facebook

DAUs year-over-year growth in fiscal year 2019 slowed down compared to Q1 2018.

Monthly Active Users YoY Growth

The same sentiment goes for Monthly Active Users

Revenue YoY Growth

In Q1 2019, the revenue YoY growth in America is the largest among geographies, even bigger than that of APAC

Average Revenue Per User YoY Growth

Average Revenue Per User YoY Growth in US & America is pretty impressive given how competitive the market is and the size of Facebook’s already massive business.

Operating Margin

Operating margin in 2018 contracted across the quarters compared to 2017. Even without the expected FTC fine, the margin would be 42%, lowered than that of previous first quarters in 2017 and 2018.

Thoughts

The numbers show that even though the growth slowed down in the first quarter of 2019 compared to Q1 2018, the business strength still seems to be pretty impressive, especially in APAC and North America. However, the company still has a lot of issues to deal with. The scandals related to the company are reported almost on a monthly basis. I suspect that ensuring the user safety and integrity of the platforms will be expensive and challenging. Plus, regulations and lawmakers are putting increasing pressure on Facebook. GDPR was mentioned repeatedly during the earning call in the sense that compliance with such regulations would negatively impact the business. In addition, Amazon has been growing fast as a fierce competitor in the advertising field, taking ads money from Google.

There is mention of cannibalization between Feed Ads and Stories Ads and Facebook building tools to help advertisers place ads in the most efficient and effective way

Now, we’re really applying that lesson to Stories. First, we need to convince marketers that people are using Stories, and I think having seen the mobile shift, their process – they’re getting that I think more quickly. But then we have to make it easy. So if you look at some of the tools and products I’ve talked about in the last couple of quarters, now you can – rather than us saying to you, go make a Stories ad you can just send us some pictures, some text, some very easy posts and we will create some Stories ads for you.

So our process is, we have one sales team selling all of these products; I think that helps us a lot because they already have those relationships. And we’re doing all we can to make it very easy to adopt the format. We also want to make this as automated as possible. So the long run view should be that you can give us maybe simple pictures, maybe simple videos, maybe an ad you’ve produced and we can do the placement for you. Because we think over time our systems will do a better job deciding where your ads should be placed and even helping you target. And so you’re seeing us build tools in that direction as well.

In terms of how much of its incremental, I’m sure not all of it is. There’s – definitely has to be some cannibalization for people who are doing feed ads as they get Stories. But we’ve seen that over time as we move people we’re able to get increasing shares, hopefully, of their budget but it’s our job to earn that. We tell marketers all over the world that we want to be the best dollar, the best minute, the best euro they spend and it’s up to us to prove that ROI and we’re going to continue to do that.

To convince people to pay for something, first it’s better to prove that the goods in question have value. By making Stories cheap, Facebook makes it an appealing option in addition to the Feed Ads. Though there is concern over cannibalization, Facebook doesn’t seem to have trouble increasing the revenue or the advertising Average Revenue Per User.

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