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Facebook Breaking All Barriers

Posted on Monday, Jul 31st 2017

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Facebook’s (NASDAQ: FB) user growth may be slowing down each quarter, but that is of little concern to its stock’s performance. During the recently reported quarterly results, the company outpaced all market expectations, despite a slowdown in growth, and got analysts to estimate stock price targets of more than $200.

Facebook’s Financials

Facebook’s Q2 revenues grew an impressive 45% over the year to $9.32 billion, ahead of the market’s estimates of $9.19 billion. EPS of $1.32 was also significantly ahead of the Street’s projections of $1.12 for the quarter.

By segment, advertising revenues grew 47% over the year to $9.16 billion. Ad revenue growth continued to report a slowdown. A quarter ago, advertising revenues had grown 51% over the year. Revenues from payments and other fees fell 20% to $157 million.

Among operating metrics, Facebook’s daily active user count improved 17% to 1.32 billion. A quarter ago, that metric had grown 18%. But it crossed a major milestone when it recorded a monthly active user base of 2.01 billion. Mobile advertising revenues accounted for 87% of advertising revenue for the second quarter, compared with 84% reported a year ago.

Facebook’s Growth Engines

The company reported some impressive pricing gains as ad pricing grew 24% over the year. A year ago, Facebook had reported a 3% growth in ad pricing, and a quarter ago it had reported a 14% growth. Facebook is able to command higher prices due to its continuing focus on mobile and video advertising. Additionally, it is benefiting from ads on Instagram, which delivers higher engagement. It is improving its community offerings through Instagram Stories and WhatsApp Stories – even though the WhatsApp ad engine has not yet been monetized. Both Instagram Stories and WhatsApp Stories have more than 250 million people using it daily. To improve user engagement across the offerings, Facebook added the capability to reply to stories with a photo or video and share a replay of live video on Instagram. At any rate, their incredible targeting capabilities are the key element driving the pricing gains in my opinion.

AI is another one of its growth engines. It has now started using AI to control terrorism, propaganda, and extremist accounts off Facebook. It is also deploying AI to understand text that might be used to promote terrorism. It is leveraging AI to improve the News Feed on people’s pages by helping them discover content beyond what is on the user’s friends’ pages. It is using AI to improve the marketing side as well. AI will allow brand marketers to put a creative message in front of the users that are most likely to be interested in the message.

Recently, Facebook added more functionality to Messenger to build a business ecosystem for the platform. The new version includes features focused on developers. The built-in basic natural language processing has been enabled so that it automatically searches for meaning and information in the text of messages that a user sends to a bot. It has a new version of hand-over protocol that lets developers build multiple experiences within a single bot. To improve payment experience, customers using Messenger webview will be able to pay using a one-step process. It has also added more Facebook Page Call to Action buttons that businesses and developers can add to their Facebook Page to drive people to the Messenger service. These buttons include Shop Now, Get Support, Get Updates, Play Now, and Get Started.

The market is thrilled with Facebook’s performance. The stock touched a record high of $175.49 before settling down to $172.45 with a market capitalization of $499.79 billion. For a moment there, Facebook had crossed the $500 billion market capitalization mark. It has grown from the 52-week low of $113.55 it had fallen to in December last year. Analysts are hopeful that Facebook has a lot of potential yet. Goldman Sachs’s raised the target to $205 from $180 and FBN Securities increased it to $210 from $175.

Photo Credit: Marco Paköeningrat/Flickr.com

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