Facebook Q1 results and five things worth your attention on their strategy relevant for financial services
Q1 2017 results - Facebook announced last week their Q1 results with major emphasis in solving for communities and reiterating the key messages of the F8 developer conference.
· Q1 2017 profit is +76.6% YoY to $3.06bn and revenue + 49% to $8.03bn coming from the ad business, 85% being generated through mobile advertising. Emarketer is giving them mobile ad share of 22.6% with Alphabet rival estimated at 35.1%
· Facebook is tracking to reach out their 2 billion users with 1.28 billion active daily users, a 18% YoY growth. WhatsApp and Facebook messenger are 1.2bn users each and Instagram 700m which is a +50% growth YoY
· 41% operating margin, down from 52% margin last quarter
· Shares were roughly down 2% hours after the announcement, as they mentioned a slow down for Q2 based on the limitation of ads they can show on the newsfeed traditional business, a significant increase in spending for data centres and infrastructure projects as well as employee growth 1700 hire in Q1 and overall +17% YoY. Drivers of growth cited by CFO Werhner are through Instagram who doubled their user based to reach 700M for which Emarketer predict a growth of 109% up to $3.9bn revenue and the video-ad business
Five things worth your attention coming from #F8, the Facebook developer conference which happen last week:
1. Facebook is turning the camera feature into a platform where any developer can build augmented reality. The move of Zuckerberg in the space is clearly to counter Snapchat and their recent IPO playing on the size of FB customer base. This fit their 10 years roadmap – see picture below. As first step, they launched Facebook spaces their social reality platforms where friends or workers can hang-out together. It's been already received very well In countries like India. For Banking it's a long shot > 10 years but this will turn experiences and interactions with a ‘Video-first lense’.
2. The social network now counts 70 million businesses with 5 million active monthly advertisers, up from 2.5 million at the end of 2015. It’s a key gateway to converting small and medium sized businesses into advertisers on the social network but also running their businesses through the network with features like marketplace. More than 1 million of these advertisers are in emerging markets, Sandberg said.
3. Facebook Messenger overall vision is to be the go to source for business listings (1.2 billion user with 30m in the UK, 20 million business every month answering queries and 100k bots), i.e. the yellow pages of the Internet and chat with friends including Spotify integration and games – see picture below, some will argue it’s following the trend of Chinese WeChat belonging to Tencent. They are continuing their expansion in payments under the lead of David Marcus, the head of Messenger and former president of PayPal despite limited revenue growth (Q3 16 $195m, Q4 16 $180m, Q1 17 $175m). They signed deals with Amex, PayPal, WU, Wells Fargo, MasterCard and Moneygram recently acquired by Chinese giant Alibaba to push the expansion of AliPay in the US. A long shot since the service launch in 2015. With the delivery of 'M' the artificial intelligence feature we shall expect automated suggestion for sending or receiving payment which will make yesterday squaring dinner really seamless or augmented experiences such as suggesting delivery and payment order if you are chatting with friends about having dinner. Facebook vision in the space is 'Automate beyond buying' providing transparent and convenient payment transfer and we could speculate potentially consumer lending at marginal costs for the user, the transaction information feeding into the main ad business. They are expecting to deploy in EMEA this year following the grant of their payment license (https://techcrunch.com/2017/01/12/what-facebooks-european-payment-license-could-mean-for-banks/); various banks have completed a facebook messenger bot experiment and they are currently piloting Facebook rewards — https://techcrunch.com/2017/05/01/facebook-rewards/
4. WhatsApp (1.2 billion user with 30m in the UK) is pursuing their strategy to be channel of choice for secure communications.
5. Facebook workplace is pursuing a very fast expansion and they have been initiating with job adverts. However we are yet to see the future vision of Microsoft with the launch mid next year of their new division Microsoft Digital that is likely to include a future strategy integrating work environment + jobs + learning following the acquisition of LinkedIn. So, still early days!
They also talked about typing through your brain and hearing through your skin but we shall leave this for later....
Ref 1 - Facebook 10 year roadmap
Ref 2 – Facebook Messenger
Ref 3 – Q1 2017 Results