Facebook tells investors to like the long game
- Summary:
- Facebook turned in what should have been Wall Street pleasing numbers yesterday, but accompanied them with a talking-to to investors that might not have gone down as well.
But was it that that explains Wall Street pushing back on the social media giant’s stock price in after hours trading? Or was it an instinctive short-termism that sat uncomfortably alongside warnings from the Facebook management that investors would have to learn to play along with a (very) long game?
On the face of it, all the big numbers that Wall Street could hope for were there:
- Facebook now has 1.39 billion monthly users, up 13% year-on-year.
- Revenues for the fourth quarter were $3.9 billion up 49%.
- Revenues for the full year were $12.47 billion, up 58%
- Profit for the fourth quarter was $701 million, up 34%
- Fourth quarter ad revenue grew 53% to $3.6 billion.
- Mobile advertising now accounts for 69% of overall revenues (eat your heart out Yahoo!)
- Video views per day increased from 1 billion in September of 2014 to 3 billion in December.
There was one nasty big number in the mix however in the form of an 87% rise in costs and that’s never going to sit well with investors.
But CEO Mark Zuckerberg is unapologetic, emphasising again that Facebook has a very long game to play and it’s going to take investment and hard work to get there:
In the next decade, Facebook is focused on our mission to connect the entire world, welcoming billions of people to our community and connecting many more people to the Internet through internet.org.
To serve the entire world, we need to build products that serve our community and allow people to share different types of content with different audiences. We need to offer new services and infrastructure at greater scale, but we need to create new tools and innovate to solve fundamental challenges in the places we want to connect.
Doing this will take a lot of effort over the coming years and Facebook is going to have to evolve.
As will shareholder expectations, being the unspoken message here.
If that didn’t sink in, Chief Financial Office Dave Wehner elaborated:
We’re a really mission focused company and we wake up every day and make decision because we want to help connect the world and that’s what we’re doing here. If we were only focused on making money, we might put all of our energy on just increasing ads to people in the US and the other most developed countries. But that’s not the only thing that we care about here.
Over the long-term, that focusing on the helping connect everyone will be a good business opportunity for us as well. We may not be able to tell you exactly how many years that’s going to happen, but I think [that as] these countries get more connected, the economics grow, the ad markets grow. Over time we will be compensated for some of the value that we have provided. But this is why we are here: we are here because our mission is to connect the world. It’s really important than investors know that.
Pragmatic stuff
Away from the big vision stuff, Chief Operating Officer Sheryl Sandberg was at pains to emphasis more short term successes and investments, particularly around mobile and video. Facebook’s mobile ad revenue in the fourth quarter doubled to $2.5 billion. compared to a 1% growth rate for desktop advertising. She said:
A shift to mobile is changing the way people consume video. Video grew dramatically on Facebook in 2014, especially around global events like the World Cup and the ALS Ice Bucket Challenge.
In just one year, the number of video posts per person on Facebook increased 75% globally and 94% in the US. Today, over 50% of people in the US who come to Facebook daily watching at least one video per day and globally over 65% of Facebook video views occur on mobile.
Marketers have followed this trend and are using video to help people discover and learn about their brands. In Q4, we expanded autoplay video ads internationally. During the holiday season, we saw many clients telling their stories creatively through video.
Sandberg also cited a scaling up of Instagram advertising activity and the 300 million potential viewers that offers:
As one of our first Instagram video advertisers, Banana Republic developed a series of videos to promote its BR clothing lines. The video showed fashion sketches from the new collection and drove a 23 point lift in ad recall. While, it’s still early and we’re being deliberate in our rollout, we believe that Instagram will become core to advertisers and mobile brand building efforts.
And clients are getting more focused and targeted in their campaigns, she added:
Travel company Thomas Cook recently used Facebook in Belgium to reach a broad audience and used custom audiences to send targeted messages to existing customers based on the places they’d expressed interest in. It reached 30% of the Belgium population in just one day and achieved a 3.85 times of return on investment. Results like these are attracting more marketers of all kinds to our platform.
But there’s still work to be done, she admitted:
I think we’ve done a good job over the last year, making our ads more relevant. But I still think, you know, some of the Facebook ads still have rooms for improvement in terms of relevance. We see a lot of room for improvements there, both in the ROI we deliver and in the experience we can provide to consumers.
For Zuckerberg, there’s a clear objective when it comes to advertising:
Our primary strategy for growing the ad business is increasing the quality of the content, not increasing the number of ads to our story that people are seeing on Facebook. So there are impacts like as people consume more content on Facebook, within the ratio of ads that organic content that will showed might be more ads.
Overall, our strategy is much less to that increasing the volume of ads and much more about increasing the quality of the content and the quality of the targeting to get the right content to the right people. This is a pretty controversial strategy internally.
My take
Some tough idealistic talking to investors from Zuckerberg and Wehner, matched with some pragmatic reminders of how things are going from Sandberg adds up to an balancing act that will be interesting to observe over the long term.
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