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Facebook Q2 results – have we finally reached a tipping point?

By Adam Fraser

Blogging about Facebook’s quarterly results since they became a listed company had become somewhat monotonous, such was the consistent strength and predictability. Growing users, growing profits, impressive free cash-flow generation. Quarter after quarter. Copy/paste previous quarters blog and change the headline. Rinse and repeat.

The recent Q2 2018 results, however, seemed to mark a potential watershed, and the share price was smashed 24% as the results were released.

Don’t get me wrong, the headline numbers were still strong, but the market was spooked about the road ahead, rather than the rearview mirror. No doubt the recent Cambridge Analytica crisis, Mark Zuckerberg’s recent testimony to Congress and a range of other governance and privacy-related headwinds created a level of tension which did not help the market’s willingness to be forgiving. Sell now, ask questions later.

To the numbers. If you want to dive into the details, you can find the financials, investor presentation and management conference call. For those without the time to review all of the details, here are 10 key points from the results:

  1. Monthly active users reached 2.23bn from 2.20bn last quarter (1.7% growth) and 2.01bn a year earlier (11.4% growth).
  2. Daily active users hit 1.47bn from 1.45bn last quarter (1.5% growth) and 1.32bn a year earlier (11.0% growth).
  3. An interesting quote from Mark Zuckerberg on security: “Looking ahead, we will continue to invest heavily in security and privacy because we have a responsibility to keep people safe. But as I’ve said on past calls, we’re investing so much in security that it will significantly impact our profitability.”
  4. During the quarter, Facebook launched two ad transparency tools; one to let anyone see the ads any page is running – even if the ads are not targeted at the person – and the other, an archive of ads with political or issue content starting in the US, ready for the midterm elections.
  5. For the first time, Facebook released how many people use at least one of their apps – Facebook, WhatsApp, Instagram, or Messenger – which was 2.5 billion people each month.
  6. Total revenue was $13.2bn versus $12.0bn in the prior quarter (a 10.6% increase) and $9.3bn a year earlier (a massive 40.9% growth), generating a net profit of $5.1bn, in a single quarter!
  7. Facebook has a reasonably balanced global spread with just under 50% of revenue coming from the USA and Canada, a ratio that has remained reasonably consistent over the past 4 quarters.
  8. Average revenue per user was $5.97 vs $5.53 last quarter and $4.73 a year ago. Note, revenue per user is significantly higher in the USA/Canada ($25.91), compared to Europe ($8.76) and the Rest of World ($1.91).
  9. Facebook ended the quarter with a cool $42bn in cash, enough to buy both Twitter and Snapchat!
  10. Some interesting other soundbites: over 200 million people are now members of meaningful groups on Facebook, Instagram active users now exceed 1 billion and mobile ad revenue was $11.9 billion (a 50% increase year-over-year) making up approximately 91% of total ad revenue. Also, over the next five years, Facebook is focused on building out its business ecosystem around messaging on WhatsApp and Messenger.

Nothing too much wrong with the actual historical results, but management flagged slowing growth rates going forward as well as further risks from GDPR regulation which led to the savage share price reaction.

As Twitter has learned, news around share price declines can create a brand reputation challenge which can then loop back into actual consumer attitudes and behaviour towards the platform.

With the privacy genie finally out of the bottle, a sense of declining consumer trust and regulatory headwinds, the waters seem far choppier from here than they have done for some time. The network effect (“I have to be on there because everyone else is there”) is a wonderful thing on the upside but delivers a savage, brutal impact on a business when it goes into reverse.

For the first time in a long time, people are openly saying Facebook may have hit a tipping point and could be in serious decline. For a business still valued at $US500bn+, that’s a big (and early) call but the headwinds are real and the risk is tangible. Interesting times.

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Instagram looks to expand video offering

By Adam Fraser

Never a dull moment in the fast-moving media landscape of 2018.

Any sense of having media providers and technology companies pigeonholed in a certain slot is repeatedly rendered outdated as the clean boundaries of previous decades continually evaporate.

One minute Disney is partnering with Netflix, then it is bypassing it. Snapchat began as a messaging platform before effectively bolting on a pure media offering with its Discovery module. Pinterest has evolved from social network to a discovery-focused pseudo search engine. Foxtel launched an SVOD offering to mimic Netflix. The list goes on.

So Instagram’s (rumoured) plans for long-form video shouldn’t really come as too much of a surprise.

Is this Instagram taking on YouTube or Snapchat? Or both? A platform just for influencers or will this evolve to long form, high production quality Netflix style content? Time will tell.

Facebook’s supposedly seamless move to add “Watch” has proved it isn’t as easy as it looks – even for a company of the scale and financial might of Facebook – to “become a TV producer”.

Whilst Instagram has historically been arguably the most skilful of the social networks in evolving its offering without alienating its core user base, there are no guarantees this will be a successful move. But clearly the scale and loyalty of its user base give it a reasonable shot.

Time will tell but this is yet another reminder of just how fragmented and dynamic the media landscape remains.

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Facebook Q1 results – a rearview mirror perspective

By Adam Fraser

The quarterly blogger routine. Facebook announces results. Change the headline from last quarter’s blog post. Look for new ways to describe the strength of financial and operating numbers without it looking like a copy paste job from three months earlier. Publish.

Suffice to say it was another extremely solid set of quarterly results from Facebook.

However, unless you have been living under a rock, you would know the context is very, very different this time. Facebook is in the midst of a privacy/data sharing crisis in relation to Cambridge Analytica, third-party access to its user data and its overall vetting model relating to both content and ads. The rearview mirror reflects the undoubted strength of its market-leading operating position, but will it be plain sailing from here? For the first time in a long time, the jury is out on this one. Some say nothing much will change, others predict an awakening of consumer consciousness to all things privacy and a material decline in user numbers and engagement (as well as possible impacts on margins, based on increased costs from higher manual content review processes). And of course, the threat of regulation looms large from a number of angles, following Mark Zuckerberg’s recent testimony to Congress.

Firstly, to the numbers. If you want to dive into detail, you can find the detailed financials, investor presentation and management conference call. For those without the time to review all of the detail, here are 10 key sound bites from the results:

  1. Monthly active users reached 2.20bn from 2.13bn last quarter (2.8% growth) and 1.94bn a year earlier (13.4% growth).
  2. Daily active users hit 1.45bn from 1.40bn last quarter (3.4% growth) and 1.28bn a year earlier (12.9% growth).
  3. A fascinating quote from Mark Zuckerberg on the changes coming in the future: “We are going through every part of our relationship with people and making sure we’re taking a broad enough view of our responsibility – not just to build tools, but to make sure those tools are used for good. This means continuing to invest heavily in safety, security and privacy.”
  4. Consistent with its commitments announced in recent quarters, Facebook is doubling their team on security and content review to more than 20,000 by the end of the year. This includes content reviewers with specific language skills to detect hate speech.
  5. Between WhatsApp and Facebook Messenger, people now send almost 100 billion messages every day. They also do more than 3 billion minutes of video and voice calling every day, making the Facebook group by far the largest network for video calling.
  6. Total revenue was $12.0bn (exceeding market expectations) versus $12.9bn in the prior quarter (a 7.8% decline, noting the seasonal factor) and $8.0bn a year earlier (a massive 49.0% growth) – generating a net profit of $5.0bn (reminder – in a single quarter!).
  7. Facebook has a reasonably balanced global spread with just under 50% of revenue coming from the USA and Canada. While a ratio that has remained reasonably consistent over the past 4 quarters, the share from the USA is showing early signs of decline.
  8. Average revenue per user was $5.53 vs $6.18 last quarter and $4.23 a year ago. Note, revenue per user is significantly higher in the USA/Canada ($23.59) compared to Europe ($8.12) and the Rest of World ($1.68).
  9. Facebook ended the quarter with a cool $44bn in cash, enough to buy both Twitter and Snapchat!
  10. Some interesting random stats: 200 million people are now members of meaningful groups on Facebook. More than 80 million small businesses around the world are using Facebook Pages. Mobile Ad revenue was $10.7 billion (up 60% from last year), contributing approximately 91% of total ad revenue. Over 18 million businesses are now communicating with their customers through Messenger.

Note, mobile usage of Facebook has now become so prevalent that Facebook no longer separately discloses mobile users. While it did, the number of users accessing via a mobile device was consistently over 90%

With revenue growth, user growth, strong margins and consistent cash flow, this is another powerful set of quarterly results. The rate of growth inevitably slows at the scale Facebook finds itself, but for now, the cash cow continues to produce.

However, there are some troubling lead indicators abound. A respected survey showed a declining use of Facebook in the USA for the first time. Some sort of regulation seems inevitable. The overall impact of GDPR on the business remains uncertain. Relationships with the developer community are also in flux in the current climate.

For a business of this scale and might, it would be a brave man to “call the top” and predict material declines from here. Yet, with the privacy genie finally out of the bottle, and regulatory headwinds, the waters seem choppier from here than they have done for some time.

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Facebook and the Cambridge Analytica crisis: one must read article

By Adam Fraser

Unless you have been hiding under a rock, you will know that “something is going on” in relation to Facebook, privacy controls around its data and Cambridge Analytica.

I review Facebook’s listed company announcements and results every quarter on this blog. For some time now, going back over 2 years, I have stated that privacy was “the sleeper”; an issue that should matter. But, consumers, in their actual behaviour, showed no sign of caring.

The combination of events that led to the Cambridge Analytica scandal biting has finally lit the torch paper. Attitudes to privacy and how our data is being used are suddenly at the forefront of society’s collective consciousness, as the “delete Facebook” hashtag gains traction and people as diverse as Cher and Elon Musk delete their Facebook pages.

There have been many articles written on this topic however, there is one that I wish to draw your attention to.

Not for the first time on this blog, it is an article from Doc Searls that I want to reference. Apart from curating a number of insightful pieces in the current Facebook/Cambridge scandal, it draws out the broader longer-term underlying issues at play. Beyond Facebook, the entire digital publishing adtech system has systemic issues where privacy and online tracking is concerned. Well worth a read.

One senses that this story still has some way to go, as regulators across the globe show a sudden interest in Facebook’s privacy policy, and Mark Zuckerberg gets called to testify before Congress.

Facebook lost $50bn in market cap in the days after the scandal emerged. How brutal the further shake out that comes, remains to be seen.

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Facebook results continue to impress

By Adam Fraser

Another strong set of quarterly results from Facebook. The 800lb gorilla of the social media sector powers on based on almost any operating metric you can look at. However, with privacy and data stoushes increasingly evident, coupled with daily users actually dropping in the USA, it’s clearly not all plain sailing at the top.

If you want to dive into the details, here are the detailed financials, investor presentation and management conference call. For those without the time to review all of the details, here are 10 key sound bites from the results:

  1. Monthly active users reached 2.13bn from 2.07bn last quarter (2.4% growth) and 1.86bn a year earlier (14.5% growth).
  2. Daily active users hit 1.40bn from 1.37bn last quarter (2.4% growth – the slowest rate since Facebook listed) and 1.23bn a year earlier (14.2% growth).
  3. A fascinating quote from Mark Zuckerberg on a change in the algorithm: “Already last quarter, we made changes to show fewer viral videos to make sure people’s time is well spent. In total, we made changes that reduced time spent on Facebook by roughly 50 million hours every day. By focusing on meaningful connections, our community and business will be stronger over the long term.”
  4. Consistent with its commitment announced last quarter, Facebook now has over 14,000 people working across community ops, online ops, and security efforts – almost double where they were a year ago.
  5. Facebook expect ‘Stories’ to eventually overtake ‘posts’ in feeds, as the most common way that people share across all social apps. Noting WhatsApp and Instagram are the #1 and #2 most-used Stories products in the world (Snapchat take note).
  6. Total revenue was $12.9bn (exceeding market expectations) versus $10.3bn in the prior quarter (a massive 25.6% quarterly increase) and $8.8bn a year earlier (47.3% growth) – generating a net profit of $4.3bn (reminder – in a single quarter!).
  7. Facebook has reasonably balanced global spread with just under 50% of revenue coming from USA and Canada, a ratio that has remained reasonably consistent over the past 4 quarters.
  8. Average revenue per user increased by over 20% in one quarter, hitting $6.18 from $5.07 last quarter and $4.83 a year ago; note revenue per user is significantly higher in the USA/Canada ($26.76) compared to Europe ($8.86) and the Rest of World ($1.86).
  9. Facebook ended the quarter with a cool $42bn in cash – almost enough to buy Twitter and Snapchat!
  10. Some interesting random stats: WhatsApp now has over 1.5 billion users, Instagram has over 2m advertisers and 25m businesses active on the platform, 6m advertisers and 70m businesses use Facebook, mobile-first video was 50% of Facebook’s video ad revenue this quarter, compared to 41% last quarter.

Note, mobile usage of Facebook has now become so prevalent Facebook no longer separately discloses mobile users – whilst it did, the number of users accessing via a mobile device was consistently over 90%.

With revenue growth, user growth, strong margins and consistent cashflow, this is another powerful set of quarterly results.

Possible clouds on the horizon? Ad revenue remains over 98% of total revenue, hence there is no diversity in income types. If ad blocking technology ever penetrated Facebook’s walled garden this clearly would be a massive threat to Facebook’s earnings, and despite its size, Facebook remains a one trick pony in terms of types of income.

Fake accounts, political interference and privacy stoushes reuse of consumer data always loom large but never seem to bite (despite the best efforts of some famous people).

The rate of growth inevitably slows at the scale Facebook finds itself, but for now, the cash cow continues to produce.

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Tech brands dominate loyalty index

By Adam Fraser

I have often discussed on both the EchoJunction blog and podcast the importance of customer retention activities in the marketing mix.

Why keep spending to ‘market to the world’, when you could invest in customer service and customer experience business processes and initiatives, to ensure your existing customers not only stay but also become advocates for the brand and do your marketing for you?

As the author of the book ‘Flip the Funnel’, Joseph Jaffe said: “retention is the new acquisition”. If the bath is leaking, perhaps it is time to put the plug in rather than turning the taps on faster.

Hence, it was interesting to read a recently released survey which ranked brands by loyalty, as opposed to the more common analysis which ranks top brands by value.

The annual loyalty study is from Brand Keys, which ranked customer engagement and loyalty for 740 brands across 83 categories, based on assessments from over 49,000 consumers.

The top 10 were telling:
(Ranking/Brand/Category)

  1. Amazon: Online Retail
  2. Google: Search Engines
  3. Apple: Tablets
  4. Netflix: Video Streaming
  5. Apple: Smartphones
  6. Amazon: Video Streaming
  7. Samsung: Smartphones
  8. Facebook: Social Networking
  9. Amazon: Tablets
  10. YouTube: Social Networking

The entire Top 10 were tech companies (noting Dunkin Donuts was 11 and Nike was 12). Interesting to see Amazon feature three times, showing its breadth of offering beyond pure online retail and Apple appearing twice for tablets and smartphones.

There are a number of factors – both emotional and practical – which drive premium customer experience and hence loyalty to a brand. However, the speed, reliability and affordability of Amazon’s deliveries and the Apple genius bar come to mind as key drivers here.

Honourable mentions in this Top 100 list for WhatsApp at 14th and iTunes at 15th.

An interesting view of brands based on a particular (and important) metric, with the dominance of tech businesses noteworthy.

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Facebook results strong as ever (but two flies in the ointment)

By Adam Fraser

Another very strong set of quarterly results from Facebook. The juggernaut powers on based on pretty almost any metric you can look at.

If you want to dive into detail, you can find the detailed financials, investor presentation and management conference call. For those without the time to digest all of this, here are 10 key soundbites from the results:

  1. Monthly active users reached 2.07bn from 2.01bn last quarter (3.3% growth) and 1.78bn a year earlier (15.9% growth).
  2. Daily active users hit 1.37bn from 1.32bn last quarter (3.2% growth) and 1.18bn a year earlier (16.0% growth).
  3. The CFO confirmed expenses will rise faster than revenue next year based on an increased focus on security. A fascinating quote from Mark Zuckerberg: “I want to be clear about what our priority is: protecting our community is more important than maximizing our profits”.
  4. Facebook has more than 6m advertisers, while Instagram has more than 2m.
  5. Video continues to increase its importance as a medium. Instagram Stories and WhatsApp Status each have more than 300m daily active users.
  6. Total revenue was $10.3bn (exceeding market expectations) versus $9.3bn in the prior quarter (a material 11% increase) and $7.0bn a year earlier (47.3% growth) – generating a net profit of $4.7bn (reminder – in a single quarter!).
  7. Facebook has reasonably balanced global spread with just under 50% of revenue coming from USA and Canada, a ratio that has remained reasonably consistent over the past 4 quarters.
  8. Average revenue per user increased by over 7% in one quarter, hitting $5.07 from $4.73 last quarter and $4.01 a year ago; note revenue per user is significantly higher in the USA/Canada ($19.38) compared to Europe ($21.20) and the Rest of World ($1.59).
  9. Facebook ended the quarter with a cool $38bn in cash – enough to buy Twitter and Snapchat!
  10. Some interesting random stats: Instagram has over 500m daily actives, Live videos generate 10x the number of interactions and comments as other videos, 20 million businesses are communicating with customers through Messenger, more than 550 million people are using Marketplace and Buy-and-Sell groups on Facebook to connect with other people for transactions.

Note that, mobile usage of Facebook has now become so prevalent Facebook no longer separately discloses mobile users. When it did, the number of users accessing via a mobile device was consistently over 90%.

With revenue growth, user growth, strong margins and consistent cash-flow, this is another powerful set of quarterly results.

Possible clouds on the horizon? Ad revenue is 98% of total revenue hence there is no diversity in income types. If ad blocking technology ever penetrated Facebook’s walled garden, this clearly would be a massive threat to Facebook’s earnings. There have even been recent signs of the cat and mouse arms race with ad blockers escalating.

Secondly, fake accounts (and fake news). As part of Senate enquiries in the USA, Facebook has been forced to admit that approximately 270 million (12%) of its user accounts are fake. Twitter has previously estimated that around 5% of its accounts are fake, hence this number exceeded previous expectations of fake account penetration on Facebook.

Privacy stoushes reuse of consumer data always loom large but never seem to bite.

For now, the blue skies remain.

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10 interesting Mark Zuckerberg quotes from Facebook results

By Adam Fraser

For the last couple of years, every quarter I blog about the listed company results from the main social media players – Facebook, Twitter, LinkedIn (before it was acquired) and now Snapchat.

Coming next week is my normal commercial analysis of Facebook’s quarterly results (spoiler alert – strong again…) but, in researching this, I found a number of interesting sound bites from the management presentation.

Here are 10 very interesting quotes direct from Mr Zuckerberg’s investor call, which paint an interesting picture around Facebook’s strategy going forward:

  1. “Our focus is on building community.”
  2. “I want to be clear about what our priority is: protecting our community is more important than maximizing our profits.”
  3. “We already have about 10,000 people working on safety and security, and we’re planning to double that to 20,000 in the next year to better enforce our Community Standards and review ads.”
  4. “Over the next three years, the biggest trend in our products will be the growth of video. This goes both for sharing, where we’ve seen Stories in Instagram and Status in WhatsApp grow very quickly, each with more than 300 million daily actives, and also for consuming video content.”
  5. “Research shows that interacting with friends and family on social media tends to be more meaningful and can be good for our well-being, and that’s time well spent.”
  6. “We’ve found that Live videos generate 10x the number of interactions and comments as other videos.”
  7. “In messaging, today already more than 20 million businesses are communicating with customers through Messenger.”
  8. “Today more than 550 million people are using Marketplace and Buy-and-Sell groups on Facebook to connect with other people for transactions.”
  9. “We’re also seeing good progress with Workplace, helping companies connect their own teams internally through their own versions of Facebook. It’s been less than a year since we launched Workplace, and today more than 30,000 companies are using it.”
  10. “I’m proud of the work we’re doing with AI. We’re now using machine learning in most of our integrity work to keep our community safe.”

The political scandal surrounding the US election has clearly had a profound impact on Facebook and it’s (previously) largely tech automated ad platform. Having long claimed to be a “tech platform” and not a “media company”, Facebook is starting to learn the hard way about the responsibilities which come with the territory of media ownership.

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Potential Facebook change ominous for publishers

By Adam Fraser

Facebook changing its algorithm wouldn’t ordinarily be massively newsworthy; such is the frequency with which it happens.

Major changes such as “Reachgate” is 2014 – when organic reach first began to be materially choked -garnered a lot of attention and angst, as brands realised they, in essence, could no longer freely communicate with fans of their Facebook pages. Reach dropped below 5% and subsequently crept much lower to 2% or less, in the following years.

Thus the begrudging acceptance of most people in the marketing world that social media had become “pay-to-play”, learning the hard lessons about the risks of rented land.

Publishers, such as the New York Times, Washington Post, Wall Street Journal (and locally, of course, Fairfax Media) have endured a slightly different but equally painful bumpy ride. Initially unsure whether to entirely reject or fully embrace distribution via third party social platforms, Facebook has attempted to entice with media-specific products such via Instant Articles, offering advertising revenue share and closer collaboration. Ultimately none have been particularly successful and in a post-Trump, Fake News era, most publishers are realising now that the only long-term safety is via driving direct web traffic and digital subscriptions.

The latest announcement from Facebook, however, is deeply ominous for publishers, many of whom still rely heavily on Facebook referred traffic. While initially only a test in 6 countries, Facebook is looking at moving ALL publisher (and brand) content to a separate tab – out of the all-important main feed and into the “Explore Feed”.

The no-go zone. How often do you explore anything other than the main Facebook feed?

The best analogy I can think of relates to changes made by Gmail in mid-2013. All newsletter and sales type emails are automatically moved out of your main email inbox and into a separate tab called “promotions”. You can guess how often that gets looked at.

If Facebook proceeds to roll out this change more broadly, there will at least be no absence of clarity about a publishers relationship with Facebook. Pay to be seen or be sent to the wilderness.

Advertising, of course, remains a viable and often very effective option for many brands (and publishers). Whilst offering far better targeting and interactivity options, the challenges for advertising as a whole remain true as the growth in ad blockers demonstrates, and the cat and mouse game between Facebook and ad blockers continues.

Social media as a platform for brands is evolving to an inevitable conclusion for a medium of connection – like the phone system –  infrastructure. We use social media to connect with people we care about. We only want to connect with brands on our terms and at a time of our choosing. Hence effective listening and real-time responses are essential components of a social strategy. Be where your customers want you to be and engage with them on their terms. Answer all of their questions at any time on any channel they wish. Beyond that, most people would prefer brands to stay out of their lives.

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The 10 most popular mobile apps

By Adam Fraser

Comscore have just released their annual report into the most popular US mobile apps.

Before we get to the Top 10, some interesting macro stats covered by the report:

  • Across smartphone and tablet use, Americans spend over half of their digital media consumption time (57 percent) in apps.
  • 18-24 year olds spend 2/3 of their digital media time in smartphone apps alone, spending over 3 hours a day there.
  • in terms of app v web usage, 87% of mobile time is spent in apps versus browsing via the web.
  • Mobile web drives more pure reach but mobile apps drive significantly more engagement.
  • Interest in new apps appears to be waning with 51% of users downloading zero apps in a month, and the average user downloading two.
  • Millennials are much more willing to pay for apps, with 1 out of 5 downloading an average of one paid app per month.
  • Across age segments, smartphone users’ number 1 app accounts for half of all time spent on apps and the top 10 account for almost the entirety.

The top 10 apps were:

  1. Facebook
  2. YouTube
  3. FB Messenger
  4. Google Search
  5. Google Maps
  6. Instagram
  7. Snapchat
  8. Google Play
  9. Gmail
  10. Pandora

I wrote as far back ago as October 2015 that the digital world was increasingly dominated by Facebook and Google.  This survey confirms the trend – Facebook and Google own the top 6 – and 8 of the top 10 – most used apps, with Snapchat and Pandora completing the Top 10 list.

Facebook is also the most likely app to be positioned on smartphone users’ home screens for easy access (the report notes that there is a strong correlation between how essential an app is to a user and whether it gets placed on their home screen).

The dominance of Facebook and Google may be no surprise, but this report is packed with other interesting insights on mobile usage and behaviour. Well worth a read.

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Snapchat Q2 numbers disappoint

By Adam Fraser

Snapchat continues to experience a bumpy ride as a listed company.

As I previously wrote, it disappointed the market with its first quarterly results as a listed company. This pattern continued as it delivered its second set of quarterly numbers – the already troubled share price fell a further 17% and now sits well below the initial IPO price.

If you want to dive into the details, you can check the detailed financials, investor presentation and press release around the quarterly numbers. If you want a quick summary, the 10 key takeaways from the Q2 2017 results are below:

  1. Daily Active Users (DAUs) grew to 173m from 166m in the prior quarter (4% growth) and 143m a year ago (21% growth).
  2. Average revenue per user was US$1.05 compared to $0.90 in the last quarter and $0.50 a year ago – this is well below the levels achieved by Facebook.
  3. Revenue for the quarter was US$182m compared to $150m last quarter and $72m a year ago.
  4. The user and revenue growth was under the level expected by the market, leading to the negative response in the share price.
  5. Net loss was $443m for the quarter, compared to a massive US$2.2bn in the prior quarter – note this figure was inflated by the expense associated with stock issues related to the IPO.
  6. Instagram stories reported in the latest Facebook announcement, that it had 250m users, showing the extent to which Instagram is successfully taking Snapchat head on via imitation of its key features.
  7. USA DAUs were 75m, representing 43% of global users, a ratio that has been broadly consistent for the past 12 months
  8. The USA, however, drove 81% of global revenues, showing the more rapid advertiser adoption in the company’s home location compared to the rest of the globe.
  9. Capital expenditure for the quarter was $19m, broadly consistent with the past 12m when the quarterly amount has varied between $16m and $20m.
  10. Adjusted EBITDA (removing the impact of stock based compensation) was a loss of US$194m for the quarter, the highest quarterly loss in the period reported (which went back to Q2 2016).

Snapchat is learning what Twitter has learned over recent years – analysts will focus obsessively on short term user growth almost to the exclusion of every other metric, making long term strategic planning a challenge to execute in a listed company environment.

Still valued at US$15bn whilst significantly loss making, Snap Inc is learning that when investors price perfection, even small disappointments will lead to the harshest of share price responses.

Snapchat is growing its user and revenue base. But its losses are also growing. And the glare of the public markets can be an uncomfortable environment to innovate, evolve and pivot whilst also attempting to drive profitability.

Snapchat has by no means completely lost its luster and its loyal, engaged millennial audience remains highly attractive to marketers. However competition from Facebook and Instagram is fierce, and much of its IP has been easily imitated. The road ahead does not look to be an easy one as Snapchat attempts to justify what remains a massive valuation relative to its actual financial performance.

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Facebook Q2 Results – Cracks 2bn Users and Powers On

By Adam Fraser.

Another stellar set of quarterly results from Facebook. The juggernaut powers on based on pretty much any metric you can look at.

If you want to dive into detail, you can find the detailed financials, investor presentation and management conference call. For those without the time to digest all of this, here are 10 key soundbites from the results:

  1. Monthly active users have reached 2.01bn from 1.93bn last quarter (3.6% growth) and 1.71bn a year earlier (17.2% growth)
  2. Daily active users hit 1.32bn from 1.28bn last quarter (3.2% growth) and 1.13bn a year earlier (17.5% growth)
  3. Instagram now has over 700m monthly users, with over 250m using the Instagram Stories feature daily (making it larger than Snapchat Stories). Interestingly WhatsApp Stories also has more than 250 million people using it daily
  4. There are now over 70 million businesses on Facebook and over 15 million Business Profiles on Instagram.
  5. Video continues to increase in importance as a medium. COO Cheryl Sandberg confirmed “More video is being shared and watched on Facebook than ever before”
  6. Total revenue was $9.3bn (exceeding market expectations) versus $8.0bn in the prior quarter (a massive 16% increase) and $6.4bn a year earlier (44.8% growth) – generating a net profit of $3.9bn (reminder – in a single quarter!)
  7. Facebook has reasonably balanced global spread with just under 50% of revenue coming from USA and Canada, a ratio that has remained reasonably consistent over the past 4 quarters
  8. Average revenue per user increased by over 11% in one-quarter, hitting $4.73 from $4.23 last quarter and $3.82 a year ago; note revenue per user is significantly higher in the USA/Canada ($19.38) compared to Europe ($6.28) and the Rest of The World ($1.48)
  9. Facebook ended the quarter with a cool $35bn in cash – enough to buy Twitter approximately three times over
  10. Some interesting random stats: Facebook has over 20,000 employees, 43% higher than a year ago; both Facebook Messenger and WhatsApp have over 1.2bn active users; mobile ad revenue is 87% of total ad revenue; Facebook data on a brand campaign showed 6 second ads outperformed 15 and 30 second ads in terms of brand metrics; there are 5m advertisers on Facebook and 1m on Instagram.

Note, mobile usage of Facebook has now become so prevalent Facebook no longer separately discloses mobile users – whilst it did, the number of users accessing via a mobile device was consistently over 90%

An interesting quote from Mark Zuckerberg on AI:

“AI can help you figure out who will be most interested in [an ad]. You don’t even need to target now because AI can do it more precisely and better than we can manually. This makes the ads you see more relevant for you and more efficient for businesses.”

With revenue growth, user growth, strong margins and consistent cash flow, this is another incredible set of quarterly results.

Possible clouds on the horizon? Ad revenue is 98% of total revenue hence there is no diversity in income types. if ad blocking technology ever penetrated Facebook’s walled garden this clearly would be a massive threat to Facebook’s earnings.

Privacy stoushes always loom large but never seem to bite.

For now, it’s all blue skies.

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Google, ad blocking, and conflicts of interest

By Adam Fraser

Google’s business model is built on advertising revenue. Lots of it. Almost $80bn in 2016. It dominates, along with Facebook, to the point it is accused regularly of being in a digital duopoly in the online advertising sector.

Stats vary, but $14bn of the $19bn spent on digital advertising in Q1 2017 in the USA went to Google and Facebook, and the two companies alone account for 80+% of the growth in the digital media sector.

So weaned as it is on advertising revenue, a headline reader may be somewhat confused as to why Google would introduce its own ad blocker into its very popular web browser Chrome.

In the ad blocking game, the cat and mouse, cops and robbers battle between publishers trying to show you ads on every inch of digital real estate, and the ad blockers trying to stop them, is an arms race in which it can sometimes be hard to decipher the good guys from the bad. One thing is for sure – consumers are “voting with their feet” and ad blocking is growing at an incredible rate.

Google’s motives could be argued to be pure – insert your own description of “enhancing the customer experience”, “removing annoying and intrusive ads” or “encouraging good quality ads which users want to see”. But there is a small elephant in the room – Google will let its own ads through. Some describe the “Coalition for better ads” which Google has joined (along with Facebook) as a “cartel orchestrated by Google”

Protecting the consumer from bad media experiences or holding other publishers and advertising brands to ransom? Meet the standards that we Google deem acceptable – if not, take your chances on our ad blocker filtering them out. In George Orwell ‘Animal Farm’ terms, all ads are equal, some are just more equal than others.

As the owner of both the most popular access point to the web (Chrome browser) and the largest recipient of digital ad dollars on the web, Google (along with Facebook) wields an enormous amount of power. The jury is out on this move, but a world in which two companies control pretty much everything we see on the web seems to be looming large.

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Snapchat’s harsh lesson about life as a listed company

By Adam Fraser

We have seen this before.

“Hot” social network IPOs to great fanfare. “The next big thing” is unleashed to the market and investors price huge amounts of blue sky into the current share price.

Quarter one users come in and disappoint, analysts revise their models, share price gets hammered.

Hard to recall, but this happened to Facebook as well as Twitter. Of course Facebook recovered to quadruple its IPO value to a current market cap of over US$400bn while Twitter still languishes today at a value of $US14bn, around 20% below its value when it listed in 2013.

Two very divergent paths. So which road will Snap Inc (owner of Snapchat) follow?

One thing is for sure – it also disappointed the market with its first quarterly results as a listed company. Users grew, but at a lower rate than the analysts were expecting, and the headline loss of US$2.2bn for a single quarter was somewhat alarming. The share price fell 24% in a single hour.

If you want to dive into the details, you can check the detailed financials , investor presentation and press release around the quarterly numbers. The 10 key take-aways from the Q1 2017 results are below:

  1. Daily Active Users (DAUs) grew to 166m from 122m a year earlier
  2. The quarterly growth rate in DAUs was lower than it has been in every preceding quarter (this was the trend which most spooked the market)
  3. Average revenue per user was US$0.90 compared to $0.32 a year ago, but a higher $1.04 in Q4 2016.
  4. Revenue was US$149m compared to $38m a year ago
  5. Net loss was US$2.2bn compared to $104m a year ago – note this figure was inflated by the expense associated with stock issues related to the IPO
  6. 3 billion daily snaps were created in the quarter compared to 2.5bn per day 2 quarters previously
  7. USA DAUs were 71m, representing 43% of global users, a ratio that has been broadly consistent for the past 12 months
  8. USA however drove 86% of global revenues, showing the more rapid advertiser adoption in the company’s home location compared to the rest of the globe
  9. Capital expenditure for the quarter was $18m, broadly consistent with the past 12m when the quarterly amount has varied between $16m and $20m.
  10. Adjusted EBITDA (removing the impact of stock based compensation) was a loss of US$188m for the quarter, the highest quarterly loss in the period reported (which went back to Q1 2016)

A tough start to life as a listed company for the newest social media kid on the block. As Twitter in particular has found, analysts will focus obsessively on short term user growth almost to the exclusion of every other metric, making long term strategic planning a challenge to execute in the public glare of the listed markets,

Still valued at US$26bn whilst significantly loss making, Snap Inc is learning that when investors price perfection, even the smallest disappointment will lead to the harshest of share price responses.

With Facebook continuing to openly copy and imitate many of Snapchat’s features, and Instagram in particular starting to eat its lunch as its version of Stories grows rapidly, the outlook is unquestionably challenging for Snap Inc.

Snapchat remains the cool nightclub to hang out in, and its loyal, engaged millennial audience is highly attractive to marketers. A pivot into camera products, retail products or AR may be coming, but right now Snapchat is looking more Twitter than Facebook as an investment opportunity.

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Brand safety concerns drive digital behaviour change

By Adam Fraser

The promise of digital was increased transparency and measurement, and a heightened ability to target the right message at the right time to the right person.

In some cases, the promise has been delivered – primarily via Facebook hyper targeted ads and SEO powered Google ads appearing alongside precisely targeted search terms.

However programmatic and the long tail of broader digital ad spend are coming under heightened scrutiny, and rightly so in the face of brand messaging appearing alongside highly inappropriate content.  An advertiser YouTube ban remains in full swing.

Brand response is coming in many forms. US bank JP Morgan Chase lowered the number of sites it advertises on from 400,000 to just 5,000. Interestingly it noted very little impact in terms of cost and overall performance – an astonishing outcome.

Chase had unintentionally shone a light on the effectiveness of ads in the long tail, the nooks and crannies of the web, and the results were not favourable for ad networks powered by automation and AI driven ad tech.

The agencies are also responding. Omnicom  – one of the worlds largest agency holding companies – is introducing human review across thousands of YouTube videos to ensure brand safety for their clients’ media buys.

Looming in the background is the landmark speech from one of the worlds biggest advertisers, the CMO of P&G, threatening to pull digital spend if transparency didn’t improve.

The business world often works in cycles – are we about to shift back to a marketing world with an increased emphasis on human curated traditional media buying, even across digital platforms?

As the risks of digital brand safety become more apparent I would suspect so.

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