Facebook Q3 Earnings: All About the Stories

Facebook reported its Q3 2018 earnings last week and gave an update on its strategy.  Revenue continues to grow and was up 33% in Q3 (compared to Q3 2017) to $13.7 billion. Facebook and its related apps (Instagram, Messenger and WhatsApp) also continue to garner an enormous audience. The company disclosed that more than 2.6 billion users use one or more of its apps each month (up from 2.5 million last quarter), and that, on average, more than 2 billion people use at least one app every day. Sometimes it is easy to forget just how large these numbers are, but keep in mind that a .1 increase over 3 months represents 100 million people.

Some of the highlights from the quarter:

  • Total revenue increased 33% from Q3 2017 (34% on a constant currency basis) to $13.7 billion.
  • Mobile advertising revenue grew at 40% and accounted for 92% of total ad revenue in Q3.
  • Net income increased 9% to $5.1 billion.
  • Capital expenditures for the quarter nearly doubled from a year ago to $3.3 billion.
  • Headcount increased 45% to 33,606 people.
  • Average price per ad increased 7% and ad impressions increased 25%.
  • Monthly active users were steady at 2.2 billion, up 10% from a year ago with the growth coming largely from Asia-Pacific (the U.S. and Canada, along with Europe, were essentially flat).

During the earnings call, both Mark Zuckerberg and Sheryl Sandberg spent significant time talking about the growth in Stories — both in Instagram and on Facebook. They believe that advertisers are still in the early stages of mastering the format for ads, but they expect Stories to ultimately drive more revenue growth than Feed currently drives — which is really saying something. They went to great lengths to indicate that the level of monetization isn’t yet there, but it will grow as advertisers figure out what works in that format.

Commerce is an area where Facebook has begun to expand, and the company provided some data on both Marketplace and Shopping in Instagram. Shopping in Stories rolled out in Q3, and they disclosed that 90 million people each month “tap to reveal product tags and posts to learn more about them.”  

Facebook highlighted that more than 800 million people now use Marketplace (ChannelAdvisor recently announced support for the Marketplace). Facebook’s motivations here are pretty clear to us and make sense. As the company’s user base caps out in developed countries and the feed becomes more saturated, it needs new revenue streams to fuel growth (and pay for all that additional headcount). To put in perspective, Facebook makes about $9 per user per quarter in the US & Canada. To the extent they can influence a purchase or two from that user, they stand to increase that level of monetization with advertisers and sellers — through additional ads or even a marketplace-like commission structure. Though it’s early days, this is absolutely an area to watch in the coming quarters.

Clearly Facebook has its share of challenges at the moment. They made clear that while they have made investments around security, there is still much more to do. The shift toward more meaningful social interactions appears to be working, and Stories will be a big part of that future.

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