On Wednesday, April 27th, Facebook held its Q1 2016 earnings call. As has become customary for the company over the past 18 months, its reported quarterly results were impressive, and its stock price consequently jumped precipitously: it opened on the 27th at $107.85, closed at $108.89, and opened the next day at $119.82 (+10% from close; Facebook’s stock price as of this writing is $117.58).
It’s not hard to understand why investors reacted with such zeal to Facebook’s earning call. Among the key metrics reported in the call:
– Q1 ad revenues grew 57% year-over-year, from $3.3BN in Q1 2015 to $5.2BN in Q1 2016;
– Mobile ad revenue increased by 75% year-over-year to $4.2BN and now comprises 82% of total ad revenues. Ad revenue growth was particularly strong in the US and APAC, up 64% and 62% year-over-year, respectively;
– Mobile-only MAUs increased by 54% year-over-year, to 894MM;
– Overall MAUs increased by 14% to 1.654BN, and mobile MAUs increased by 20% to 1.508BN;
– ARPU increased worldwide year-over-year, but especially in the US & Canada region, where it grew by almost 50%.
This bumper quarter paints the picture of a company that is simultaneously growing and figuring out how to make more money per user, even in high-ARPU regions (compare these results to Twitter’s, which show more or less the opposite, with 0% year-over-year MAU growth in the US).
In the earnings call, Sheryl Sandberg, Facebook’s COO, said the company’s performance was the result of its prioritization of three key initiatives:
– The continued shift to mobile (this is vague, but ostensibly in feature development that leads MAU growth);
– The growth of its marketer base;
– The improvement of its ad products.
The first initiative is obviously going well, as per the company’s reported mobile and mobile-only MAU metrics, although for how long that growth can be sustained is anyone’s guess. Mark Zuckerberg, in the call, referenced the Messenger bots revealed at the F8 conference as one potential effort of its mobile agenda: it seems clear that increasing the footprint of its messaging apps could expand its overall mobile user base as well as increase non-News Feed related engagement. This could also be an important, strategic source of mobile revenues in the medium- and long-term future.
The second and third initiatives are perhaps more interesting, however, both within the context of this particular quarter and what can be assumed to be Facebook’s general strategy going forward. In the call, Sheryl Sandberg noted that three times as much video is created and shared on Facebook as was a year ago and that time spent watching video on Instagram was up 40% in the sixth months ending February 2016. Video seems to be Facebook’s primary focus in the second and third initiatives cited above, and it’s interesting to think about how that might manifest itself in the next 4-6 quarters and potentially beyond.
In terms of expanding the company’s advertising base, the clear path forward is the increased presence of brand advertising in the News Feed and on Instagram, with these formats being positioned as complements (or perhaps even substitutes) for television advertising. In the call, Sheryl Sandberg made reference to two campaigns that support this idea.
The first was a campaign that Nestlé ran for its Natural Bliss coffee creamer in which a television creative was edited for mobile in less than one day and run in a Facebook video ad (alongside the original television creative for comparison). Sandberg noted that the Facebook-optimized creative drove a 10-point increase in ad recall versus a 4-point increase for the original television ad.
The second campaign was run by Chase Bank during the Superbowl: the company ran a Facebook video ad in conjunction with its Superbowl ad and saw that the combination of ads drove 1.5 times as many conversions (measured in credit card applications) as TV ads alone do (although it wasn’t made clear what historical campaign this was measured against and whether the Superbowl data could be properly isolated).
These campaigns showcase Facebook’s viability as a brand advertising platform and underscore its ambition to increase the number of video brand advertisements in News Feed (initiative #2 above). To do this, the company will need to grow its suite of advertising tools to provide performance transparency to brand advertisers (initiative #3 above).
On the tools front, Facebook made mention of its auto captioning tool for video (to increase engagement with videos when sound isn’t turned on — according to Sandberg, captions increase video view time by 12%), its new canvas ad format (which combines video, images, and call-to-action buttons), and its “conversion lift” measurement tool (which helps advertisers evaluate campaigns based on some proprietary definition of conversion, such as the credit card application metric cited in the Chase campaign). These tools are particularly suited for video and seem specifically designed to resonate with brand advertisers. Strategically, at least for the short term, this appears to affirm Facebook’s principal advertising focus.
(Full disclosure: I am a Facebook shareholder)