It was unlikely that the Facebook’s Q3 earnings release could ever touch Q2 for drama — the social media site hemorrhaged 20 percent of its share price overnight. Those kinds of earnings fireworks are rare events.
However, Facebook — perhaps the world’s leading expert at keeping people’s attention — still managed a pretty exciting earnings release this time around. There was no bloodbath in the stock price to watch from the sidelines, but there was an exciting round of stock price seesaw during the earnings call where one could watch the firm’s share price drop and recover only to drop again, mostly correlated in real time to whatever Mark Zuckerberg was specifically saying about Facebook’s future at that moment.
After ricocheting around during an earnings call that was called “wild” by more than watchers (by Facebook, as opposed to Tesla, standards), and hitting a bottom of 6 percent losses and a top of 5 percent gains, investors were ultimately happier than worried. Not to mention, the stock is up going into today's (Oct. 31) trading.
Facebook, according to its CEO, is now getting ready to double down on heavy investments in the business during 2019 as it focuses on building out new products, such as Facebook Watch, Instagram TV and Facebook Marketplace. Zuckerberg also noted that increased security and fraud detection will be a focus going forward, particularly as the network moves into its next evolutionary period.
“If the last 10 years have been about friends and family, then the next 10 years will be about your communities as well. When we say communities, we mean both helping people connect with [other] people who share their interests, which is a major need in people's lives, and also building out specific services for bringing people closer together — like helping you find someone to date or find a job, or buy and sell things, or grow your small business, or create an event, or start fundraisers, or bring together a group to volunteer.”
Slow User Growth, Sluggish Revenue
What’s next for Facebook was a particularly pressing question during yesterday’s (Oct. 30) earnings because, given the figures Facebook posted, it seems that growth on the platform is slowing, especially among its core audiences in the U.S., Canada and Western Europe. As of Q3, Facebook reported 2.27 billion monthly users, up 37 million users or 1.79 percent. That's not the firm’s slowest growth ever (that was Q1’s 1.54 percent), but it is close. Plus, it was slightly below Wall Street forecasts of 2.29 billion monthly users. It added 24 million daily active users, reaching 1.49 billion, up 1.36 percent and short of the 1.51 billion estimated by analysts pre-release.
Growth was particularly slow in the U.S., Canada and Europe markets, which were flat and lost 1 million monthly users, respectively, last quarter. Those markets are, far and away, Facebook’s more relevant from a revenue perspective — as they account for 70 percent of its advertising revenue. As a result, growth in other regions does not offset slowing in the west.
Facebook average revenue per user worldwide is $6.09 — the individual points in that average are quite different. In the U.S. and Canada, Facebook’s revenue per user is $27.61 on average. In Europe, its $8.82. In Asia-Pacific, on the other hand, it is $2.67, and $1.82 in the “rest of the world” region. Slowing U.S. and European growth is a problem for Facebook’s revenue stream.
Speaking of revenue, that also missed expectations set going into the earnings release. All in, the company earned $13.73 billion in revenue, but missed expectations of $13.78 billion. The firm did beat on earnings, with an earnings per share (EPS) of $1.76 instead of the estimate of $1.47, for a total profit of $5.16 billion.
The attention-grabbing issue, however, was the apparent slowing growth of the Facebook revenue train. Revenue was up year on year (YOY) during Q3 — by 33 percent, to be exact. Last year at this time, though, Facebook was logging 49 percent YOY growth. A year before that, the firm was touting its 59 percent revenue growth.
The Next Evolution(s)
Despite the initially mixed report, Facebook’s shares closed up 3 percent on the initial announcement. The earnings call began, and the after-hours share price roller coaster spun up.
During the call, Mark Zuckerberg stressed that the nature of social media is changing, shifting away from the Newsfeed that Facebook is famous for and toward private messaging and temporary slideshow stories. As of today, users are sending hundreds of billions of messages via Facebook’s family of apps and are sharing over a billion slideshows per day across its platforms.
Newsfeed — Facebook’s most lucrative offering in terms of ad revenue — generated the first big drop in share price during the call. Facebook also noted that across its total platforms (which include Instagram, Messenger and WhatsApp), it reaches a global audience of over 2.6 billion — as compared to 2.5 billion last quarter. Zuckerberg also tossed out a news stat: Over 2 billion people use at least one Facebook-owned app every day on average. Some people leave Facebook, but many are heading right on over to a different Facebook-owned app.
Moreover, Zuckerberg noted that Facebook has been upping the number of video ads — which command much higher prices — it shows and is working to develop a richer way to monetize its Stories feature across platforms going forward.
“I'm optimistic that we'll get ads and Stories to perform as well as Feed over time, and that the opportunity will be even bigger because it looks like Stories will be a bigger medium than Feed has been. But I want to be upfront that even assuming that we get to where we want to go from a Feed-only world to a Feed-plus-Stories world, it will take some time [and] our revenue growth may be slower during that period like it was while transitioning our products to mobile,” Zuckerberg said.
Facebook said it's building out its focus on leveraging the Newsfeed, and the networks of connection that users have spent a decade developing on the platform, to continue to expand its services offering. On the call, Zuckerberg noted that Marketplace is now used by 800 million people, that its jobs search tool has connected its users to 1 million jobs, and that its fundraisers tool has helped people raise more than $300 million for charities on their birthdays alone.
“And I'm looking forward to rolling out dating across the world soon, too. These are services that generally benefit from having everyone you know connected on a single platform,” Zuckerberg added.
Zuckerberg also discussed the company’s challenges with user safety and harmful content, saying Facebook has made progress, but it will likely not have a firm grasp on the problem until end of next year.
“We’re getting better and better at this, but I anticipate that it will be about the end of next year when we feel like we’re as dialed in as we would generally all like to be,” he said. “And even at that point, we’re not going to be perfect.”