Digital MarketingIndustry DevelopmentsFacebook earnings report: 7 takeaways for martech

Facebook earnings report: 7 takeaways for martech

In the recent Q3 Facebook earnings report, we saw growth slowing. Zuckerberg cites investment in and monetizing of new platforms. Here's what it means for martech.

On October 30, Facebook released their Q3 earnings report. While their revenue was still a casual $13.7 billion (up 33% from Q3 2017), growth has been slowing as compared to previous years.

In his update to investors, Mark Zuckerberg cited nearing “saturation in developed countries” as a possible factor. He also identified three key strategies they’re shifting toward: 1) putting less emphasis on News Feed and more on Stories and messaging, 2) growing Watch and IGTV to compete with YouTube, and 3) improving security in response to increasing threats.

He says 2019 will be a year of increased investment in those new experiences, implying continued slowed revenue growth while they figure out how to best monetize those platforms.

Here, we’ll cover the main highlights from the report and dive into what these updates mean for martech.

Highlights from Facebook’s Q3 2018 earnings report:

  • 2.6 billion people estimated using at least one of Facebook, WhatsApp, Instagram, or Messenger (their “family” of services) every day
  • Revenue: $13.7 billion. Up 33% from 2017, which had revenue $10.3 billion.
  • Net income: $5.1 billion. Up 9% from 2017, which had net income $4.9 billion.
  • 1.49 billion daily active Facebook users, up 9% YOY
  • 2.27 billion monthly active Facebook users, up 10% YOY
  • ~92% total advertising revenue was from mobile, up from 88% of total in Q3 2017.

They’re now measuring (as of last quarter) people who use any of their apps (WhatsApp, Instagram, Messenger, Facebook) rather than just those on Facebook, for a better representation of their community. This also obviously aligns with their overall shift toward messaging and storytelling.

Three key strategy updates from Zuckerberg:

  1. People are moving to private messaging and stories for connection, rather than public feeds. Zuckerberg was clear that where they want to go is “from a feed-only world to a feed-plus-stories world,” but that 2019 will be a year of slower revenue growth while investing in those new experiences. He cited the need for “some time for our business to catch up to our community growth.” They’re still figuring out how to monetize messaging, stories, and the Instagram Expore tab.
  2. Growth of video. They’re working on growing Facebook Watch and IGTV, though acknowledged that both are well behind YouTube. They hope an advantage will lie in making these a “unique people-centric experience.” Zuckerberg noted that ads on News Feed have a much higher ROI than those on video, but that he feels strongly the future is stories.
  3. Increasing safety and security threats. “We have significantly improved our systems here, but we have more to do.”

What will this news mean for martech?

While earnings reports are more immediately concerning to investors, marketers also obviously have stake in the game — they provided almost all of that $13.7 billion Q3 revenue stream in advertising.

1. Continued emphasis on storytelling

People now share more than 1 billion stories every day.

On his reason for investing in stories, Zuckerberg stated, “I just think that this is the future. People want to share in ways that don’t stick around permanently and I want to make sure that we fully embraced this.”

He noted that while Instagram Stories and WhatsApp Status took off immediately, Facebook Stories has been much slower, with the transition from News Feed-first to stories-first not having been “as smooth as he’d hoped.”

2. Figuring out new ad platforms

Much of Facebook’s slowed revenue has been still being in the stages of product development and figuring out how to monetize those platforms.

Zuckerberg said, “We’re following our normal playbook here of building out the best consumer products first and focusing on succeeding there before ramping up ads. I’m optimistic that we’ll get ads in stories to perform as well as feed over time, and that the opportunity will be even bigger because it looks like stories will be a bigger medium than feed has been.”

It looks like the future will hold ads in Facebook Stories, Instagram Stories, Instagram Explore, and potentially Messenger and WhatsApp.

They’ll begin with two products: paid messaging and ads in stories. “By making businesses pay to send messages,” Zuckerberg said, “we believe it will make them more selective with what they send.” More updates will come on these in the next few quarters.

3. Public feed to private messages

People share more photos, videos, and links on WhatsApp and Messenger than they do on social networks.

In the future, businesses may need to advertise and sell directly on WhatsApp and Messenger. There are already more than 3 million accounts on WhatsApp Business.

This will be a change from prioritizing Facebook posts to more time in personal, private interactions.

4. Emphasis on Instagram to Explore, IGTV, and new shopping experiences

For Instagram, on the other hand, they plan to focus less on communities and more on helping users explore interests — which means IGTV, shopping, and Explore.

Zuckerberg stated, “Explore is already about 20% of the time people spend in Instagram. But unlike feed, we haven’t built any ads experience for it yet, so that’s an opportunity.”

5. Knowing which messaging platforms work best in which countries

In the US, iMessage is ahead of WhatsApp/Messenger. In other countries, including many in Europe and Latin America, Facebook’s products stand ahead.

6. More focus to video

According to Zuckerberg, “Video is a critical part of the future, it’s what our community wants, and as long as we can make it social I think it will end up being a large part of our business as well.”

The business challenge of video is that “it monetizes significantly less well per minute than people interacting in feeds.” Facebook acknowledged that as video grows, it will likely displace some other more profitable services. However, they still believe it is the future, providing more engaging content.

7. Continued concerns of privacy and safety

Zuckerberg cited this as a key challenge facing Facebook. Their data breach earlier this year was one of the worst we’ve seen, not to mention many accusations of hate speech, election interference, and fake news.

They’ve pledged to hire thousands more people to combat these threats. They’ve also added an election “war room” to promote integrity of information around elections.

Future for Facebook

Much of Facebook’s future revenue growth depends on us — on marketers — and how comfortable we feel using and spending on new advertising platforms.

For now, investors seem to be confident despite slowing growth:Facebook shares rose by 6.4% on Wednesday, the biggest one-day gain since April.

Despite the hype over “slowing growth,” the reality is they’re still at 33% YoY, a rate most companies only dream of. No one would expect their wild growth of previous years to last forever — it’s just a matter of when the slowdown would happen and how they’ll innovate to keep the business thriving.

To read the full reports

The full text of the investor conference call can be found on Zuckerberg’s Facebook page here. A pdf of their earnings report can be viewed here.

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