A couple weeks removed from another strong earnings
announcement, and despite investor’s ho-hum reaction, CEO Mark
Zuckerberg, COO Sheryl Sandberg, and the rest of the
team are hitting on all cylinders. There weren’t a ton of
surprises last quarter, spending was up as expected, revenues and
earnings both jumped significantly, and monthly average users, or
MAUs, continued to inch up.
But what about the future? Facebook’s earnings report and
subsequent call made several things clear in terms of what
investors should expect going forward — for this year and
beyond. Much of what we saw and heard recently coincides with
Zuckerberg’s plans for Facebook over the next three, five, and 10
years. Here are several things investors can expect to see from
Spending will continue
Heading into Facebook’s recent Q4 and 2014 earnings announcement,
CFO Dave Wehner forewarned investors that expenses would jump by
as much as 70%. Turns out, Wehner undershot Facebook’s spending.
On a GAAP (including one-time items) basis, expenses jumped to
$2.72 billion — up 87% from 2013’s Q4. What did Facebook spend
all that money on? The biggest checks were written for research
and development, which skyrocketed to $1.1 billion from last
year’s $408 million.
Sandberg mentioned during Facebook’s conference call a good
portion of the research and development spending hike was used to
fine-tune its ad-related measuring tools, and beef up
infrastructure: both necessary pursuits. Going forward, as per
Wehner, 2015 will see more overhead increases to the tune of
50%-75% above 2014’s inflated costs.
Patience is a virtue
As Zuckerberg said when outlining Facebook’s long-term
objectives, and reiterated this past quarter, properties like
WhatsApp and Messenger won’t boost revenues in the near-term. The
objective is to grow MAUs first, and monetize later. Like
investing, assimilating and monetizing acquisitions like WhatsApp
is a marathon, not a sprint.
As for Instagram and virtual reality manufacturer Oculus,
those should begin paying dividends sooner as opposed to later.
That said, a timeline for fully monetizing Instagram was
conspicuously absent on the Jan. 28 earnings call. However, there
were no uncertainties surrounding Facebook’s plans for video.
YouTube, meet Facebook
Facebook has been toying with rolling out video across its site
for some time now. There’s no denying its potential: just testing
video spots on Facebook commanded a whopping $1 million a day
from advertisers « lucky » enough to take part in the experiment.
The reason Facebook, as well as
‘s YouTube property, has a seemingly unlimited upside is because
video ads work, and marketers will pay for results.
Additionally, video ads are one of the fastest growing areas
in digital marketing. Video spots generated just shy of $6
billion last year, and that’s expected to grow to nearly $8
billion this year. Not surprisingly, YouTube dominates video
today, accounting for nearly 19% of the overall market. But with
Facebook going all in, and its user’s already eyeing over a
billion videos a day, Google’s YouTube is going to have a fight
on its hands.
Stagnant user growth
Facebook MAU growth will continue to trickle up, as it did last
quarter, rather than pop by leaps and bounds. Facebook and its
1.39 billion MAUs are « just » 40 million more than in 2014’s Q3,
which may be disconcerting to some.
But consider this: Facebook already counts nearly half the
people in the world that have Internet access — about three
billion at last count — as a user, so until Zuckerberg’s
Internet.org initiative takes hold there’s only so much room to
grow. Which accounts for Facebook’s emphasis on the usage of its
other properties, as well as focusing on user engagement, already
an area of strength. A whopping 890 million of Facebook’s
« friends » are daily average users, or DAUs, 18% more than a
All things mobile
It seems almost absurd now, but it just a couple of years ago
investors and industry pundits were bemoaning Facebooks lack of a
mobile presence, let alone generating revenues from users on the
go. Today, nearly 1.2 billion of its MAUs are mobile, and more
impressively, just shy of 70% of Facebook’s ad revenues last
quarter came from mobile — a 53% improvement from a year ago.
And if not for the strong dollar negatively impacting exchange
rates, mobile ad revenues would have increased 58%.
In the months and years ahead, Zuckerberg and team will
continue building mobile solutions and revenues as a percentage
of the whole. The world isn’t going mobile anymore; it is mobile.
And all the yet-to-be-connected users around the world? For many,
a smartphone or other inexpensive mobile device will be the
method of choice to join Facebook’s 1.39 billion fans.
Wall Street hacks Apple’s gadgets! (Investors,
prepare to profit.)
Apple forgot to show you something at its recent event, but
a few Wall Street analysts and the Fool didn’t miss a beat:
There’s a small company that’s powering Apple’s brand-new
gadgets. And its stock price has nearly unlimited room to
run for early in-the-know investors. To be one of them,
originally appeared on Fool.com.
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