Social Commerce

Mobile Takes Center Stage In Facebook Earnings (Payments Is A Bit Player)

Today is a good day to be Facebook. Cake and party hats are likely the order of the day in Menlo Park — or rapiers, or great books or endurance running. It can be hard to keep up with what Team Facebook’s rather subjective and various definitions of fun are day to day.

Whatever esoteric celebration it chose, however, it is definitely celebrating, as there is little room for disagreement when it comes to Facebook’s Q4 performance.

In Q4 alone, sales spiked up 52 percent from a year ago, to $5.84 billion, blowing away analyst estimates of $5.37 billion. Profit was also up, more than doubling to $1.56 billion from $701 million in Q4 2014. On a non-GAAP basis, profit was $2.27 billion, again a bit of an uptick from the ~$1.95 billion analysts were predicting.

On the usership front, there are now 1.59 billion regular Facebook users, which means if FB were a nation, it would now officially be the largest nation by population on Earth, as China’s population is only 1.37 billion. That figure represents 21 percent growth from the year before. Facebook’s daily active users log in at 1.04 billion (third-largest country on Earth) — a 17 percent increase that was in line with analyst expectations. Instagram has 400 million regular users monthly; by comparison, Facebook’s next biggest and best-known competitor, Twitter, has about 300 million active users.

For the year as a whole, Facebook is reporting $3.69 billion in profit on $17.93 billion in revenue, an increase of 44 percent from 2014.

The Street, needless to say, was excited. Facebook’s shares spiked up 13 percent in after-hours trading — enough that Mark Zuckerberg is now the sixth-richest person on Earth. As Facebook’s stock spent the evening on the rise, its CEO’s net worth increased $4.85 billion to $46.25 billion. That puts Zuckerberg more than $2.5 billion dollars ahead of Oracle Chairman Larry Ellison, who has a net worth of $43.6 billion.

Facebook’s success alone is impressive, since, generally speaking, it is hard to see one’s usership pick up when it was already counted in the billions — let alone the double-digit increases. Moreover, analysts have a tendency to get exuberant at earnings time, and a frequent complaint out of firms is that they are missing targets that are set irrationally high. Blowing away their predictions is no small feat.

Plus, Facebook is a tech firm, and the most recent run of earnings reports have been brutal for tech firms on the whole. Twitter’s stock price is down 55 percent over the course of the last year, and the company is now being not-so-subtly whispered about as a takeover target. Yelp is down 60 percent; even LinkedIn is leaking users and has seen its figures fall 15 percent. And while social media platforms as a category are having a hard time figuring out how to convert all those users into meaningful monetization, Facebook’s ad revenue is so lucrative at this point that it may as well be a printing press.

So, what’s its secret?

Mobile magic, more or less, and the fact that Facebook followed the direction the wind was blowing early.

The vast majority of Facebook’s revenue comes from advertising — $5.64 billion. Of that ad revenue, 80 percent (~$4.51 billion) comes via mobile ads. And that is a piece of the pie that is growing rapidly. In Q3, it was 78 percent; in Q4 2014, it was 67 percent. And, if one wants to think back to the distant past that was four years ago, that figure was a paltry 23 percent.

“We have a Super Bowl on mobile in the U.S. every single day,” Sheryl Sandberg, chief operating officer of Facebook, noted in an interview.

Facebook did not break out specific numbers for advertising, though both Sandberg and Zuckerberg did hit fairly hard that 98 percent of Facebook’s top advertisers were now also advertising on Instagram and that the firm expects to see continued growth in ad revenue from the platform. Similar pronouncements were made about WhatsApp.

While the earnings call was a short, mostly high-level overview of the firm’s prospects and outlook, there were some interesting tidbits on offer. The firm noted virtual reality as an area of interest, as well as Internet-delivering drones that will make Facebook accessible to even the farthest-flung corners of the Earth (the earnings report also highlighted how dominantly American and European the service’s usership and growth has been in recent years) — two ideas that are a standard deviation of the mean or two away from Facebook’s core mission.

“With a new addition to my family, I’ve been reflecting a lot on the legacy we want to pass on to the next generation,” Zuckerberg noted on the call with investors, further stating Facebook’s commitment to “continue to focus on solving the fundamental challenges facing the world and bringing the world closer together.”

Zuckerberg also gave payments and commerce watchers a little peek at Facebook’s payments plans — or lack thereof.

“On payments, the basic strategy that we have is to make it — especially in products like Messenger where the business interaction maybe a bit more transactional — to take all the friction out of making the transactions that you need. So, we don’t view ourselves as a payments business; that’s not the type of company that we are. We’ll partner with everyone who does payments. We look at the stuff that Apple is doing with Apple Pay, for example, which is a really neat innovation in the space that takes a lot of friction out of transactions as well. And our view is that the less friction, the better the user experience, the more people can easily interact with businesses that they care about.”

As for what’s next, the most eye-catching thing Zuckerberg noted is that the iconic “Like” button is on its way out — soon to be replaced by a Reactions feature. The idea, Zuckerberg noted, will be to give users an ability to not just like things but also note if they have a different feeling about an item in their newsfeed.


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