Facebook Q3 19 Earnings Call Review

Still behind on reading a number of news items from the last quarter and the Q3 earnings review from Facebook is one I did not want to miss given the performance the stock has seen despite the uncertainty related to its future. 2019 has not been a great year for the image of the Company although its stock seemed to have shrugged it all off during the year given the performance it has had. The year started with concerns of their privacy and data issues but quickly developed into antitrust issues for its incursion into financial services with Libra and its thought to consolidate all of its brands. However, these issues have had little net impact to their financial performance despite slowing growth and higher expenses associated to all the issues.

I found that the introduction to the call by the CEO being so weighted towards their approach of advertising for the upcoming United States elections. I almost fell asleep half way through as there is nothing less interesting than politics and their advertising practices. With most of the privacy issues off the table given their disclosure of an accrual of up to $5 billion to settle regulator issues, the focus remain on their products and performance of their different applications.

"There are now around 2.8 billion people using Facebook, Instagram, WhatsApp or Messenger each month and around 2.2 billion people using at least one of our services daily." - Mark Zuckerberg

Amazing to see how the conglomerate continues to approach 3 billion users which continues to be the single largest community in the world, bigger than any country or even Region. Monthly Active Users are about 2.45 billion while Daily Active Users are about 1.62 billion which continue to signal relatively high engagement among total users despite their supposed actions to cut down the amount of engagement in time across the platforms. This is one of the key metrics that amaze me as I feel how difficult this can become for a social media network to sustain based on my experience here on Steem. The balance between retaining users and attracting them is something that we can surely learn from here in the ecosystem.

As I mention in my valuation thoughts about Steem, user engagement is the key indicator for value. This continues to be demonstrated by Facebook's ability to monetize the network and their connections. Mobile ad revenue, which is 94% of their total revenues, reached $16.4 billion this quarter. That represents $10 per Daily Active User! How much do the users get? Nothing... Cheap business model that pays its investors which is why it is one of the most valuable Companies in the world. While ads are becoming cheaper, the scale they have built continues to work in their favor in terms of margins despite the large increases in expenses to support the growth.

One metric that caught my attention was the mention that 140 million business are now engaging on their platforms to create social hubs and build communities. The social networking groups continue to be the best place to advertise based on how the engagement of messages and interactions can be measured relative to their costs. This is another reason why I believe that Steem has potential in the future as it can become a better way for businesses and brands to engage with users and customers given the ability to interact with them by not only their advertising and offerings but with rewarding their attention.

"And we also differentiate between payment systems that are built on top of the existing financial infrastructure like what we're trying to do with WhatsApp payments or when we make payments in Instagram Shopping, and our work with something like Libra that is trying to build some new technological infrastructure for financial services. So they're working on different thing. If Libra works, then it will be able to make certain kind of payments whether they're micropayments or remittances across borders. We'll be able to be done much faster and much more affordably than it can happen today on top of existing rail.
So I remain optimistic that we'll be able to do work there, but we're just working across a lot of different fronts here because this is a huge space. It's one of the areas that I am most excited and optimistic about for the years ahead. There's a lot to do, which is why we have a lot of different projects that we're trying to push forward here." - Mark Zuckerberg

Unfortunately, not much was said regarding their Blockchain and Cryptocurrency project, Libra. However, the fact that they remain optimistic and allocating resources to the project is promising. While many continue to be conflicted on whether it will serve as a gateway to more adoption or just another centralization of financial services, the ability for a project to get the attention and potentially clarify some of the gaps in regulation is great for other projects in the space. It is always fun to read on the progress during these updates!

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