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FACEBOOK ENJOYS AN ‘AD’MIRABLE Q2, 2017

5 min read

For a social channel to last more than a decade is an almost impossible feat to achieve, but not when it is Facebook that you are talking about. Every now and then, rumors surface about its impending death; doubts are voiced about its ability to stay relevant with changing times. Inspite of it all, the pioneering social networking channel has not only stuck around since its instigation in 2004 but has only grown bigger with each passing year. Today, Facebook is the number one social channel on the internet, generating revenues that give even Google a complex!

Speaking of revenues, Facebook released its second quarter earnings for 2017 last week (July 26) and the numbers are looking great. In fact, this quarter is actually among the best ones ever for Zuckerberg and Company. The revenues were presented in both GAAP and non-GAAP measures. Take a look at the highlights:

  • 2.01 billion users monthly active users
    With a year-over-year increase of 17% from 1.71 billion last year; it was 1.94 billion for the first quarter of 2017

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  • Revenue of $9.321 billion
    With year-over-year increase of a whopping 47% from $6.436 billion in Q2 2016; Q1 2017 saw revenues at $8.032billion

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  • Earnings Per Share(EPS) is $1.32
    As opposed to $0.78 from last year’s Q2; in Q1 1017 it was $1.04
  • Advertising—the main contributor to revenue
    With mobile advertising forming 87% of the earnings of Q2 2017; Q1 saw the mobile advertising revenue forming 85% of total revenue; it stood at 84% in Q2 2016
  • Over 70 million businesses
    The last two quarters haven’t seen any decrease in the number of have Facebook pages by businesses.

In the telephonic interview with analysts on Tuesday, Zuckerberg said that the past decade saw Facebook “make the world more open and connected”. Facebook definitely wins on that score, what with 2.01 billion people now using it the world over.

“We expect that full-year 2017 total GAAP expense growth will be approximately 40-45% narrowed from our previous range of 40-50%,” said CFO David Wehner. This is good news for them, for Zuckerberg has been investing heavily in major projects. An important one of these projects is Aquila—a solar-powered plane that the company is building, which will make the internet available to parts of the world that do not have access to it. The company is also spending heavily in improving their infrastructure to run on renewable energy, and they are expanding their data centers in Los Lunas, New Mexico and Altoona, Iowa.

Investments in the video sector are also going to contribute to expenses in the coming quarters. Also, the company is looking to expand into countries like India.

The overall headcount has gone up too, at 43% increase year-over-year, with 20,658 as on June 30 this year. This number is likely to increase and contribute towards expenditure.

Company COO Sheryl Sandberg laid emphasis on helping businesses create content for the mobile medium. Facebook is a big player in the video market and provides a great opportunity for creating“snackable” content for users.
That said, Facebook does have cause for concerns, considering that the revenue growth has been slower than the previous quarters, especially for ad revenue. Wehner hinted at ad revenue growth rate declining further for the upcoming quarters. As Facebook becomes more and more video-oriented, Wehner thinks ad impressions will come down in number, because of the relatively lesser number of ads on video mode(although mid-roll ads have been introduced, they are featured only in select videos), unlike the News Feed feature.

This was expected, as Facebook stated that it expected ad revenue growth to slow down “meaningfully”. Besides, Facebook is looking for alternative monetization avenues, as the News Feed feature has reached “maximum ad load”.

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The graph shows how revenues have started taking a dip since the second quarter of 2016, as Facebook News Feed as an option for advertising became more or less exhausted. The present quarter alone sees a 4% decline in revenues and Facebook has never seen such low revenues since 2015.

But things are still bright for the company, as the scope for monetization through media for mobile is staggering. Sandberg said, in her statement, “Our goal is to build meaningful connections between people and businesses by focusing on our three key priorities: helping businesses leverage the power of mobile, developing innovative ad products, and making our ads more relevant and effective.” Marketers are realizing that content consumption on mobile is faster than on any other medium. The company is now working to increase ad impressions and improve marketing in innovative new ways in collaboration with businesses, according to Sandberg.

The company is also positive about investments in AI, for purposes like flagging content published on the News Feed.

“We’ve started using AI to fight terrorism and keep propaganda and extremist accounts off Facebook. We’ve even started experimenting with using AI to understand text that might have been used to promote terrorism,” said Zuckerberg, in the telephonic interview.

However, on July 31, Facebook suffered a setback in this regard, when they had to shut down their AI enabled Messenger Bots. Researchers found that the chat-bots had abandoned English in favor of a new language that they had developed themselves, and were engaging in “negotiations”. The setback comes in the wake of Zuckerberg and Elon Musk, CEO of Tesla and SpaceX, disagreeing in their views on AI last month. Elon Musk said in a tweet that Zuckerberg’s understanding of AI is ‘limited’, after Zuckerberg spoke in a live stream video on Facebook, answering questions on the subject of AI. When asked what he thought about AI pessimists, Zuckerberg reacted, calling them “naysayers drumming up doomsday scenarios”. Unfortunately for Zuckerberg, looks like Musk won the argument.

But this setback is only a small dent in the business for Facebook, considering that its sister concerns, WhatsApp and Instagram have also enjoyed a great quarter. WhatsApp is being used by 1 billion people every day, and over 15 million businesses have Instagram profiles. This means there is tremendous scope for advertising in these platforms as well in the future, although Zuckerberg admitted in the interview that monetization through WhatsApp, Messenger and Instagram is slower than expected.

This concern was voiced even after the company came up with some extra features: mid-roll video ads are slowly being featured on videos on Facebook(subject to certain conditions); Instagram Stories were unveiled this year, as were WhatsApp status updates and both these features enjoy over 250 million users every day worldwide. Messenger also saw ads being introduced for a small number of people.

It is still early days to decide how effective these new features are going to be in making money for the company. Over all, Facebook has had a great first half to the year and is definitely getting bigger than ever before. With the whole world favoring the mobile medium, things are boded well for Zuckerberg and Company.