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Facebook Q3 Earnings: Bad Actors Cast a Shadow Over Strong Performance

Facebook has certainly been in the news of late and mostly for reasons it would like to avoid. From ‘fake news’ to election interference, it’s been a difficult period for the social media platform. Yesterday, Facebook reported another strong quarter of growth but took pains to emphasize just how seriously it takes protecting the integrity of the community. CEO Mark Zuckerberg opened the earnings call by stressing how important this integrity is to him and that security will “significantly impact our profitability going forward” in the form of additional investments in both people (will double the number of people to 20,000) and technology (AI and other investments). It seemed very clear that Zuckerberg and team believe the long-term viability of the Facebook community and platform are at stake here.

Some of the highlights from the quarter:

  • Overall, revenue increased 47% with advertising revenue growing 49%. Q3 was Facebook’s first $10 billion quarter (but certainly not its last).
  • Mobile advertising revenue grew at 57% and now represents 88% of advertising revenue
  • Average price per ad increased 35% and ad impressions increased 10%
  • Net income increased 79% to $4.7 billion for the quarter
  • Monthly active users increased 16% to 2.07 billion
  • Headcount was up 47% as Facebook hired more than 2,500 employees during the quarter.

One interesting data point from an advertising perspective was the fact that the average price per ad increased 35%. Facebook attributed this to a combination of both constricting supply (as they are limiting the number of ads in the News Feed — impression growth was down to just 10%) and better performance from advertisers (leading to better outcomes and a higher willingness to pay). COO Sheryl Sandberg reaffirmed that making advertising more relevant and effective to advertisers remains a key business priority.

Instagram

Facebook announced that Instagram crossed a milestone during the third quarter: 500 million daily active users (DAU’s). As a comparison, this is more than a third of the total DAU’s that Facebook reports —- representing a sizable audience. Much of this growth continues to be around video. Instagram Stories is now driving increased engagement with more than 300 million active users.

Future Investments

The impact to future profitability stems from investments that Facebook says it’s committed to making over the next three, five and ten years to improve and defend the platform from those who seek to use it for nefarious purposes.These investments include hiring people to enforce standards but also directing many engineering resources to make this their top priority. Facebook has a history of focused execution — its famous lockdowns have led to significant advancements in everything from Mobile to Live — so we would expect to see similar changes here. On the call, it indicated that investors should expect capital expenditures to double next year to $14 billion.

From an e-commerce advertising perspective, these investments don’t have immediate impacts.  However, as Facebook continues to improve the platform with the intended result of better engagement, we should see continued growth in the advertising space. With an audience of more than 2 billion users, there is clearly a lot at stake — and the world is watching for the next move.

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