It's unlikely of course that he's remotely bothered, but Facebook founder Mark Zuckerberg learned a lesson yesterday: don't tell Wall Street how much you're going to spend to change the world because they're not going to like it!Facebook turned in third quarter revenues up 59% of $3.1 billion, profits up 90% to $806 million and user number growth year-on-year of 14% to hit 1.35 billion. (That whimpering sound you can hear is Yahoo! curling up in the corner!).
And how did Wall Street reward these stellar numbers? It sent the share price down by 10%. The problem? Lots of talk from Zuckerberg about pioneering gambits to change the world and the consequent increased costs that these would incur, starting this year.
Costs were already up 41% in the third quarter as the company added 1,200 new employees, but the company is warning that the total increase for the year could be as high as 75%.
But Zuckerberg is unrepentant. This is a guy with a mission:
You’ve heard me talk about our big company goals of connecting everyone, understanding the world and building the next generation of platforms. These goals are important for us and part of our foundation of our strategy for the next decade, but achieving these will involve many different efforts and steps along the way, some that will be achieved rapidly and others that are going to take longer.
For the next 10 years our focus is on driving the fundamental changes in the world that we need to achieve our mission, connecting the whole world, understanding a world with big leaps in AIs and developing the next generation of platforms, especially in computing.
From a technology point of view, the Facebook CEO enthuses about the long-term potential of Oculus as a genuinely transformative platform:
As I've said before, with Oculus, we're making a long-term bet on the future of computing. Every 10 to 15 years, a new major computing platform arrives and we think that virtual and augmented reality are important parts of this upcoming next platform.
We continue to see a lot of excitement in the developer community and we've now shipped more than 100,000 of Rift developer kit to over a 130 countries. It's still early for Oculus but we are encouraged to see the variety of apps and games being developed for this platform.
Particularly close to his heart is the Internet.org initiative to connect up the entire world. Zuckerberg says this has entered a very busy phase:
In July we worked with Airtel to launch the Internet.org app in Zambia. This provides free data access to a set of basic internet services for health, education, employment and communication. The results from this are very encouraging. We've already heard a lot amazing stories about how people are using the internet to add value to their lives. We hope to bring the Internet.org app to many more countries soon.
Over the last few months, I've also travelled to several countries and met with policy makers, key distributors and people and communities that are coming online for the first time. Increasingly industry and governments are seeing expanding internet access as one of their core priorities. This is positive development for our work with Internet.org in our long-term goal of connecting everyone in the world.
But these are long games Zuckerberg is asking Wall Street to play:
Our efforts here will take longer to achieve their full impact, but we're going to continue preparing for the future by investing aggressively. So that’s how we’re approaching our strategy over the next three, five and 10 years, while focusing on our big goals of connecting everyone, understanding the world and building the next generation of platforms.
More palatable were the words from COO Sheryl Sandberg who affirmed Facebook's ongoing leadership in online advertising:
One of the best ways to improve relevance is to help advertisers reach the right audience with their messages. Facebook age and gender targeting is 45% more accurate than the digital industry average. Working with Facebook advertisers can also target based on peoples interests. In addition, we’re continuing to build out custom audiences, which enable marketers to use their own data to segment current and prospective customers. We’re pleased with the response from clients and we’re focused on driving deeper penetration with those existing and new clients.
But Sandberg too had an eye on the longer-term objectives, such as the launch of new advertising technologies and metrics:
We’re investing in ad-tech for a simple reason. Consumers are shifting quickly to mobile and the advertising industry is not keeping up.
One of the main reasons the budgets aren’t moving as quickly as consumers is that advertisers hasn’t yet had an effective way to serve ads and measure their returns on mobile. Current solutions work well for person with one device, especially, a PC and for sales that happen online.
It's clear that marketers and publishers need better tools for the mobile world. This is an industry problem that we believe we are well placed to solve.
And now the tricky bit:
I want to emphasize that the investments we’re making in ad-tech are long-term. These are large and strategic investments. The path will take time, but we think that provide a necessary foundation for the advertising industry to make the shift to mobile and for Facebook’s long-term growth. We recognize that by staffing engineers in these strategic ad-tech areas, we forego shorter term product improvement improvements which would generate revenue more quickly. We believe these are the right decisions.
Certainly Zuckerberg is now playing on a five to ten year timescale, but he argues that this is just the nature of the Facebook beast:
For us, products don't really get that interesting to turn into businesses until they have about a 1 billion people using them. For Facebook, we're there with News Feed and that's why in the near term our priority is really around continuing to grow and serve that community and making sure that the business around News Feed and those mobile ads fully reach their potential.
Over a five year time frame, we have a number of services which we think are well on their way to reaching a 1 billion people. Messenger, WhatsApp, Instagram and Search are a number of them. Once we get to that scale, then we think that they will start to become meaningful businesses in their own right. The right strategy is to first focus on connecting 1 billion plus people and reaching the full potential before very aggressively turning them into businesses.
I do think that this is such a big opportunity ahead of us. I can't think of that many other companies or products that have multiple lines of products that are on track to reach and connect one billion that have a clear path of how we can turn them into a business. That will be a very fun and exciting challenge to work on over the next five years.
Facebook behaves like a grown-up company and Wall Street has a minor hissy fit.
Zuckerberg and Sandberg's long-term thinking is to be commended, but the cool reception from the market is a timely reminder of the need to keep short-term returns in mind at all times. Wall Street wants a comfort blanket to wrap around itself and wiring up Africa isn't it.
But these are numbers to make every other company in the social and cloud markets green with envy.