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Facebook is Taking on Google

Posted on Thursday, May 7th 2015

Facebook (Nasdaq: FB) recently announced mixed results for their latest quarter. While they managed to surpass market expectations on earnings, revenues were a different story. That has not stopped Facebook from continuing to add to their arsenal of revenue-generating opportunities.

Facebook’s Financials

Facebook’s first quarter revenues grew 42% over the year to $3.54 billion, missing the Street’s forecast of $3.56 billion. EPS of $0.42 was ahead of the market’s forecast of $0.41 for the quarter. The drop in the revenues was attributed to unfavorable foreign currency movement.

By segment, advertising revenues grew 46% over the year to $3.32 billion. The growth in advertising revenues was driven by continuing mobile engagement. Mobile ad revenues for the quarter increased 85% to $2.4 billion. During the same period, ad revenues from desktop fell 4% over the year.

Facebook ended the quarter with a mobile-only monthly active user base of 581 million, recording a 70% growth. Overall, Facebook’s monthly active users grew 13% to 1.44 billion with daily active users growing 17% to 936 million. Mobile daily active users increased 31% to 798 million.

During the quarter, Facebook’s ad impressions fell 62% due to lower ad volumes on mobile devices. However, the company benefited from an increased average price per ad which reported a 285% gain driven by redesigned ads that now offer better value to marketers. Average revenue per user increased to 25% to $2.50.

Facebook Taking on Google

According to market reports, Facebook’s Messenger accounts for nearly 10% of VoIP calls. Facebook plans to increase this share by several new initiatives. Last month, Facebook launched Hello, an app that allows users to call a number directly from Facebook. The app is positioned to replace the native dialler app that comes with an Android device and will be made available in the US, Brazil, and Nigeria initially. The app will allow users to go through their friends list on Facebook and the user can call a friend on this list using Facebook. In fact, even if the friend has not shared or listed their phone number, Facebook will allow the user to call them through Messenger.

Facebook is planning to take on Google with this app. Last year, Google earned nearly $4 billion in revenues from the click-to-call feature that lets users call a business directly from the Google’s search results page. Hello will also allow its users to call up local businesses, get directions, and make reservations for their restaurants directly through the app. Analysts believe that Facebook will be able to leverage Hello to charge businesses a premium fee for allowing them to appear higher on a dialer search.

More recently, Facebook also announced plans to add video calling on the Facebook Messenger. The announcement puts Facebook in direct competition with Google Hangouts, Skype, and FaceTime. The video service will be available on Messenger through iOS- and Android-based smartphones. The feature will initially be made available in 18 countries including the US. For now, Facebook has not defined any plans to charge users for this calling service. They will also keep it separate from WhatsApp, which has also added a voice call feature recently.

Facebook is also making some headway into video views and thus getting ready to compete with YouTube. According to recent reports, Facebook now delivers 4 billion video views a day, compared with 1 billion views in September 2014 and 3 billion in January 2015. While that is a huge gain, Facebook still needs to figure out their strategy on monetizing these video views better. Their biggest disadvantage lies in the fact that while viewers come to YouTube with the intention of viewing videos, they come to Facebook to socialize. Putting too many video ads out there may become distracting for viewers.

Facebook’s stock is trading at $77.56 with a market capitalization of $217.1 billion. It touched a record high of $86.07 in March this year.


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