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Facebook Will Continue to Rise

Posted on Tuesday, Feb 16th 2016

Facebook (Nasdaq: FB) recently turned twelve and what an exciting twelve years they have been. The company has constantly defied market speculation on its valuation and capabilities. When it went public in 2012, Facebook became the biggest ever tech IPO, surpassing Google’s listing price. And things haven’t stopped looking up since. The company is now planning to have more than 5 billion users by 2030.

Facebook’s Financials

Facebook’s Q4 revenues grew an impressive 51% over the year to $5.84 billion compared with the market’s estimates of $5.37 billion. EPS of $0.78 was also ahead of the Street’s projections of $0.68 for the quarter.

By segment, advertising revenues grew 57% to $5.64 billion and payments and other fees revenues fell 21% to $204 million. Mobile accounted for 80% of advertising revenues for the quarter compared with 69% share a year ago.

Among operating metrics, daily active users (DAU) grew 17% over the year to 1.04 billion as of December 2015. Mobile DAUs grew 25% over the year to 934 million. Monthly active users (MAU) grew 14% to 1.59 billion and mobile MAUs grew 21% to 1.44 billion. For the period, average revenue per user grew 37% over the year to $3.60.

Facebook also delivered impressive statistics on its other platform usage. Instagram has now more than 400 million users compared with 300 million a year ago. Facebook’s Messenger had over 800 million users globally, reporting an addition of 250 million users during the year and Whatsapp’s user base grew to over a billion compared with 700 million a year ago. All these platforms provide Facebook with huge data to further hone their already potent ad targeting capabilities.

Facebook ended the year with revenues growing 44% to $17.93 billion. Net income for the year grew 17% to $1.31 per share.

Facebook’s Video Focus

Video is a strong focus area for Facebook. During the fourth quarter, over 8 billion views of videos were recorded, amounting to more than 100 million hours of video watched daily on Facebook. Recently, it began testing offerings like suggested videos that allow users to discover video content that they may like and is also looking at creating a separate online place for users where they can just view videos.

To give Twitter tougher competition, Facebook launched live video streaming to all iPhone users across the US. The live streaming capability comes built into Facebook’s iOS app and will soon be available for Android users as well. Users will now be able to share live video by tapping on the Update Status and selecting the Live Video icon. During the broadcast, the person broadcasting will be able to see viewership details in terms of number of viewers, names of friends, and a real-time stream of comments to interact with the audience. At the end of the broadcast, the video stream will be saved on the user’s Timeline and can be deleted or kept available for friends to watch later. Unlike Twitter’s video feeds though, Facebook’s video feeds will be available to share only with the user’s friends and not with the public at large.

It is also adding additional capabilities for advertisers. Most users watch autoplay videos on their mobiles that play silently in the news feed. But video ads rely on effective soundtrack to deliver the brand’s message. Facebook’s recent update thus includes a new caption tool. Earlier, the publishers had to embed their own captions, but with the new auto-caption tool, the publishers just have to review the captions before the ad is published. Initial test results reveal that the format has seen viewership of the video ads with captions increase 12%.

Facebook’s India Expansion

Facebook’s stock did well on the announcement of its results. But the growth was short-lived as it suffered a setback for its expansion plans in India. To ensure Facebook keeps growing its user base, it has been pushing its Free Basics program. Free Basics is an initiative to bring Internet access to more than 30 emerging economies worldwide for free. Users are able to connect to the Internet for free, but the sites they are able to visit are highly restricted. They are not able to go everywhere as they would with normal access to the Net.

The initiative has been criticized in quite a few countries, but nowhere have the protests been as vehement as in India. Activists and authorities have contended that the Free Basics program does not allow for net neutrality as users get free access to only a select few apps and web services and thus put at disadvantage small content providers and startups that do not participate. Recently, India’s Telecom Regulatory Authority of India (TRAI) ruled against allowing the launch of services such as Free Basics in India. Given the protests, Facebook announced plans to withdraw the project from India. India’s decision will hurt Facebook as other regulatory authorities could follow suit.

The market has not reacted positively to the news. Facebook’s stock is trading at $102.01 with a market capitalization of $290.4 billion after touching a high of $117.59 earlier this month. In the long run, though, the extraordinary ad targeting that Facebook is able to deliver will bring the stock right back to where they were, and the company will continue to rise. No other platform has the level of data that Facebook has. The ad dollars will continue to flow in.

 

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