Facebook is the most powerful social media machine on the planet, yet Wall Street can’t get excited, why?
Facebook’s third quarter earnings fof 43 US cents per share was above analysts expectations of 40 cents per share based on a market consensus polled by Thomson Reuters but the company’s shares fell nearly 10% after the earnings announcement.
The social media network continues to generate significant growth in advertising revenue. Of its $2.96 billion ad revenue, which is up 64 percent from a year ago, 66 percent is derived from mobile ads. So mobile ad revenues are on the right track.
Site traffic is also similarly impressive. Every day, Facebook gets active visits from 864 million users, up 19% year-on-year. On a monthly basis, 1.35 billion users flock to Facebook. Mobile users are also on the rise, at 1.12 billion, up 29% year-on-year but growth quarter-on-quarter was slower, at 4.67% (vs 5.9% prior quarter).
Facebook expects fourth-quarter revenue to grow between 40% and 47% in comparison to the same quarter last year. Wall Street was looking for year-over-year revenue growth of 45% – not bad by all accounts.
Why then is Wall Street tentative towards Facebook? Several reasons were attributed for analysts’ lukewarm response to the results. One of the major concerns is Facebook’s increase forecast for expenses, reported to grow between 50% and 70% next year, as the company looks to invest in talent and new areas like video, CNBC reported CFO David Wehner saying on the company’s conference call.
According to one Wall Street report, the US television advertising market is estimated at $66 billion, and Facebook wants a piece of it. Facebook hit a new milestone achieving this quarter, achieving 1 billion video views in a day for the first time ever. During the summer a video challenge drew more than 10 billion video views by 440 million people.
Another worry for analysts is the unimpressive contribution from Whats App, the mobile phone messaging system acquired by Facebook for US$22 billion.
WhatsApp brought in just $15 million in revenue in the first half of 2014 with users totalling 600 million. WhatsApp had a net loss of $232.5 million of which $206.5 million was for share-based compensation expenses and to issue common stock below fair value, according to Tech Crunch.
The report adds that WhatsApp’s profit model isn’t based on ads and the company has yet to aggressively push the $1 a year subscription fee it sometimes charges. Instead, WhatsApp’s focus will be on making the messaging system a top international messaging app first, boxing out competitors, and then earning money once it’s solidified its position.
One other acquisition which analysts are hoping will add to Facebook’s value is Oculus Rift, virtual reality headset for gamers. Facebook founder Mark Zuckerberg told analysts however that Oculus is a long-term outlook, and needs to reach more sale before its contribution will be meaningful.
“It needs to reach a very large sale, 50 million to 100 million units, before it will really be a very meaningful thing as a computing platform,” Zuckerberg said in response to a question about the company’s plans for the Oculus hardware.
Hmm..James Cameron of Avatar fame is not impressed with Oculus Rift
Still mighty big
But if social media traffic is what a company is after, Facebook is still the place to go. Check out this chart by Statista.Com which shows why Facebook is still king of social media, and the fastest growing one.
In September 2014, Facebook referrals accounted for 22.4% of traffic to the sampled websites. That’s an increase of more than 115% compared to September of last year, when Facebook drove 10.4% of traffic, Statista says.
Here’s the big picture
Zuckerberg told analysts the company will be continuing to invest heavily. The future is about Facebook using multiple platforms to connect everybody on the planet.
The company will be pursuing its Internet.org ambition, he says. Internet.org is partnership between Facebook and 6 mobile phone companies that aims to bring affordable Internet access to everybody by increasing affordability and developing new ways to provide easy internet access.
Zuckerberg told analysts: “This is a very big period, a very busy period for our efforts with Internet.org. 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.
“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.”
Worth reading: Business Insider’s account of Facebook’s earnings release