Facebook posted a strong set of quarterly earnings figures yesterday net earnings came in almost 20% ahead of analyst forecasts. Revenue rose 33% on the same three months a year earlier, at $13.7 billion just fractionally short of the $13.8 billion predicted. However, earnings of $1.76 a share when $1.47 had been pencilled in was enough to set a more optimistic market reaction than that of three months ago when revenue growth of 44% wasn’t enough to calm negativity around slowing user numbers growth. CEO Mark Zuckerberg was also seemingly successful in focusing attention towards new growth products, focused on video, that Facebook believe have a bright future despite current monetisation teething problems.
In afterhours trading, following the announcement of the results, Facebook’s share price added 2% to the 2.9% is had gained throughout the day and was trading at $149. However, the social media giant’s market capitalisation is still down around a third on its year-to-date high recorded before the negative reaction to its Q2 earnings report. This time around though, slowing growth, mainly due to saturation in developed markets, is already priced into the Facebook share price, allowing investors to focus on the positives.
During his call with investors following the posting of the quarterly earnings, Zuckerberg focused on the growth opportunities represented by the new-ish ‘Stories’ feature, the short video clips format the company took from Instagram’s playbook and is proving to be a success. New standalone video products Facebook Watch and IGTV were also discussed along with messaging apps Facebook Messenger and WhatsApp. Native Facebook-based ecommerce is the final big revenue growth opportunity being driven forward.
The company believes it is these products that will drive future revenue growth once it is able to efficiently monetise them through tailored advertising platforms that are still being figured it. The challenges in monetising new features is reminiscent of Facebooks initial challenge of successfully driving advertising revenues from its Newsfeed. However, investors will take confidence from the fact that the company did finally do so with notable success despite concerns during Facebook’s first years as a public company.
Another major announcement yesterday was that of a new ‘war room’ whose role will be to combat the spread of misinformation, or fake news as it has become popularly known, over the social media’s platforms. The department started work early this month and has already ‘detected’ and deleted pages, groups and accounts in the high double figures linked with an Iranian-backed misinformation campaign designed to influence voters in the USA and UK.
In the wake of scandals around Facebook being used to distribute fake news campaigns with the goal of influencing voters as data breaches such as the Cambridge Analytica scandal earlier this year, perhaps Facebook’s biggest challenge is not finding the most effective way to monetise video products but to regain the trust of users. That, perhaps more than anything, will dictate its future potential to continue to drive revenue growth.
With Apple expected to publish earnings that show another quarter of record earnings, boosted by this week’s launch of the new iPad Pro and MacBook Air products, it looks like Amazon will this time stand alone among the FAANG technology stocks in posting quarterly earnings that missed forecasts.