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Facebook Explores Payments and Commerce

Posted on Thursday, Feb 6th 2020

Facebook’s (Nasdaq: FB) battle with privacy concerns are far from over. The company recently announced that it had settled a class action lawsuit by paying $550 million in fine, and it was also slapped with a $5 billion fine for privacy abuses by the Federal Trade Commission. Despite this, its quarterly results surpassed market expectations. Facebook is also looking at expanding its service offerings to e-commerce and payments to drive growth.

Facebook’s Financials

Facebook’s Q4 revenues grew 25% over the year to $21.08 billion, ahead of the market’s estimates of $20.87 billion. But the growth in revenue did not translate to similar growth in net income. Net income grew a modest 7% over the year to $7.3 billion. Non GAAP net income was $2.56 per share, ahead of the market’s forecast of $2.51 per share.

Facebook’s operating margins fell to 34% of the expenses from 45% a year ago. Its expenses grew 34% as it added significant headcount to manage privacy issues. Headcount grew 26% to 44,942, as it added over 1,000 engineers to work on privacy issues.

By segment, advertising revenues rose 33% to $20.74 billion. Ad impressions served rose 31%, driven by ads on Instagram Stories and Feed, and Facebook News Feed. However, average price per ad fell 5% due to a change in the mix toward Stories ads and in geographies where the monetization rate is low. Average Revenue per User grew 16% to $8.52. Revenues from Payments and other fees grew 26% to $346 million.

Among key metrics, Facebook had 1.66 billion daily active users during the quarter, growing 9% over the year. Monthly active users grew 8% to 2.5 billion. Facebook now has 2.26 billion users that use either Facebook, Messenger, Instagram, or WhatsApp each day, compared with 2.2 billion last quarter. Monthly users for the family of apps grew 9% to 2.89 billion.

This quarter, with its 25% growth rate, was the slowest quarter that Facebook has ever reported. And Facebook expects the growth to drop further in the first quarter of 2020. Facebook does not provide an outlook, but it mentioned that maturing business, the impact of global privacy regulation, and concerns about ad targeting will cause growth rates to further slow down in the coming quarter. Analysts were expecting Facebook to deliver revenues of $18.67 billion for the current quarter with an EPS of $1.96 and revenues of $85.76 billion for the current fiscal year with an EPS of $9.18.

Facebook’s Diversification

Facebook is looking at expanding its presence in the e-commerce and Payments segments to drive revenue growth. For quite some time, Facebook was planning on launching a cryptocurrency of its own. But it has put those plans on hold and instead launched Facebook Pay in the US last November. The payment service will leverage Facebook’s existing financial infrastructure and partnerships to help simplify and unify payment processing across Facebook and Messenger apps.

Facebook realizes that people already use payments across its apps to shop, donate and remit money. Facebook Pay will make those transactions easier and secure. Users will be able to choose the apps they want to use Facebook Pay on and will be able to view payment history, update settings, or manage payment methods, all in one place. Facebook Pay will support most major credit and debit cards and PayPal. Payments on the service are being processed in partnership with companies like PayPal and Stripe.

Facebook plans to extend the service to WhatsApp Payments, which will allow users to send money as quickly and easily as sending a message. Facebook got approval to test the service with 1 million people in India in 2018. Inspired by its success in the region, it is looking at launching the service in other geographies.

Besides payments, commerce is another big focus area for Facebook. It is working on services that will simplify the use of Facebook Marketplace and Instagram Shopping. It is investing in providing services that will help small businesses set up storefronts, engage with customers, address product and payment concerns, and ultimately support themselves. For instance, to simplify the shopping process for small businesses, Facebook launched Checkout on Instagram with a small closed beta early last year to allow small businesses to sell directly to the viewer through the app. The service was well liked and now they have hundreds of businesses in the US experimenting with Checkout.

Its stock is trading at $209.83 with a market capitalization of $598 billion. It had climbed to a 52-week high of $224.20 earlier this year. It hit a 52-week low of $159.08 that it was trading at in February last year.  

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