For Facebook, it would seem that ramping up its Buy button and Messenger Payments can't come soon enough. As the social network's user base continues to shift to mobile and expand into the rest of the world, advertising is no longer keeping pace with revenue expectations -- and the logical answer would be payments.
But as in previous earnings calls, Facebook executives didn't say much directly about their payments projects that are slowly making their way into regular use.
And they do appear to be needed. In Q1, Facebook's ad revenue rose to $3.32 billion, up 42 percent from a year ago (and it reportedly would have been up 55 percent, except for the soaring dollar and the staggering euro). But that growth rate dropped from Q4, which showed a 53 percent increase. A breathtaking 73 percent of advertising revenue was from mobile ads -- even more impressive because mobile advertising rates are typically lower than for desktop Web users.
But payments and other fees dropped to $226 million, down 5 percent from a year ago. (In Q4, it was up 7 percent year-over-year.) That was largely due to a decline in games played on PCs, said Facebook CFO Dave Wehner.
Taken together, that meant revenue came in at $3.54 billion, missing analyst estimates for the first time since 2012. However, Facebook's 42-cents-per-share earnings did beat analysts' 40-cents estimate.
And despite its already massive user base, Facebook keeps growing. Overall, Facebook's monthly active user count rose to 1.44 billion, up 3.6 percent from Q4 and growing faster than the previous quarter's 3.18 percent rate, with 936 million daily users, up about 5 percent from Q4. On mobile, monthly active users climbed to 1.25 billion, up 5 percent from the previous quarter, a slight slip in growth rate. But the 798 million mobile users who opened a Facebook app every day represented a 7.1 percent jump, accelerating from Q4's 5.97 percent. And 581 million users access Facebook only from their mobile devices, a 10 percent increase from Q4.
But even that user growth presents revenue challenges. Much of the growth comes from developing countries beyond North America, Europe and Asia/Pacific -- and in the "Rest of World" category, average revenue per user (ARPU) from ads fell from 92 cents to 78 cents, down 15.2 percent from Q4.
With payments from PC gamers declining and ever-more-mobile ad revenues not keeping pace with expectations, Facebook does have other places to look for income. What about charging for voice-over-IP (VoIP) calls? "In terms of VoIP calling, no, we're not going to charge for it, just like we're not going to charge for messaging," CEO Mark Zuckerberg told analysts. "What we're focused on is providing higher quality services for free than you can otherwise get paying for them." Between Facebook Messenger and WhatsApp, Facebook now represents more than 10 percent of global VoIP usage, he added.
How about generating revenue from the longer-form videos that Facebook now supports -- including syndication to other platforms? Could that generate Netflix-style revenue? Not really interested, according to COO Sheryl Sandberg. "We're basically focused primarily on video on our own site and service, and video tends to be pretty short-form content right now on Facebook because it's playing in news feeds," Sandberg said, adding, "We think it's a very attractive platform for people to reach people with video messages."
In practice, what's left is social commerce and person-to-person payments -- both of which are still officially in the early stages for Facebook. While the company announced a Buy button last summer in partnership with Stripe, it's been slow to ramp up. "We have a very small test in the U.S. we started last quarter for Buy on Facebook, and that enables people to buy products from merchants with a Buy button on pages," Sandberg said. "It is a product that is used and aimed at [small and medium-size businesses]."
As for P2P payments, that was just announced as a Facebook Messenger feature in mid-March, with plans to roll it out "over the coming months in the U.S." That initial version of P2P payments is free for users and Facebook doesn't hold the money -- using the service will require registering a Visa or MasterCard debit card issued by a U.S. bank.
In its Messenger P2P payments announcement, Facebook warned that it could take a few days for the money to arrive, which suggests that Facebook might be working on a faster version that would carry a small charge and also avoid card-brand interchange fees. That would be in line with P2P payments offerings from chat apps like Tencent-owned WeChat, Alibaba-partnered Sina Weibo and Japan's Line.
However, Facebook said nothing about Messenger's payments capabilities during the earnings call -- or whether those capabilities would be extended to WhatsApp, the text-message-oriented chat app that Facebook acquired in February 2014 for $19 billion, which competes more directly against WeChat, Weibo and Line and seems like a logical candidate for P2P payments.
Zuckerberg did say explicitly that WhatsApp and Messenger won't be combined ("In terms of integrating them -- no, we're not going to do that," he told an analyst). That could be a hint that Facebook will experiment with different payments approaches on the two platforms -- but for now, it's no more than a hint.
Zuckerberg also responded when an analyst asked about Facebook's plans for the Apple Watch. "You know, I haven't actually spent that much time with this so far," he said. "So I mostly just want to congratulate Apple on shipping something that seems like a pretty amazing piece of technology at work and we're proud to be supporting. I know that we have a bunch of apps and it's a space that's going to be really interesting, and we're going to watch closely and build what our community wants us to."