Facebook Invests for Future After Another Revenue BeatBy
Zuckerberg focuses on video, partnering for short-form clips
Mobile ad revenue made up 84% of company’s total ad sales
While Facebook Inc. continues to rake in money from mobile advertising, the company is planting the seeds for other ways to generate revenue -- in video, virtual reality and messaging.
Following a better-than-expected quarterly performance, with sales jumping 51 percent to $8.81 billion, the world’s largest social-media company stood by its plans to invest aggressively in hiring and building out its data centers.
It’ll be necessary. Five years after filing for its initial public offering, Facebook’s business is set to diversify from News Feed advertising into a number of other areas, many of which will require the company to create markets around user activities that aren’t common yet. That could include playing with virtual reality headsets, communicating with business bots on its Messenger chat application or coming to Facebook’s new video tab to explore short-form entertainment.
In its push to expand video, Chief Executive Officer Mark Zuckerberg said the company will have to partner with others or pay for content, which will fill the “video” tab on Facebook’s mobile application. Then people will visit to keep up to date on their favorite show or posts from public figures and friends.
“That’s a pretty different intent than how people come to Facebook today,” Zuckerberg said. Facebook would share ad revenue with the content creators. It’s one of many ways the company is building video into its products. “I see video as a megatrend on the same order as mobile,” he said.
Facebook rose 1.4 percent to $135.11 in premarket trading Thursday. As of yesterday’s close, the shares were up 16 percent since the beginning of the year.
Strength in Mobile
Facebook has solidified its position as No. 2 in the market for mobile advertising, behind Alphabet Inc.’s Google, and reported Wednesday that it made 84 percent of its revenue that way in the fourth quarter. The Menlo Park, California-based company last year started selling more marketing spots on Instagram, its photo-sharing app that now has more than 600 million users.
“Facebook and Google are the two foundational elements to all digital advertising,” said Brian Wieser, an analyst at Pivotal Research Group. “They’re just so big in terms of how much time people spend on the platform, and no advertisers’ goals need go unmet if they’re using Facebook.”
Contrast that dominance with Facebook’s position in the virtual reality market, where the company is in fierce competition with HTC Corp., Microsoft Corp., Google and others.
In messaging, Facebook leads, with its Messenger and Whatsapp properties each serving more than 1 billion monthly users. But they don’t make a dent in revenue yet. About a billion messages get sent every month between users and businesses on Messenger, but making money from those relationships is still in the “very early stages,” said Sheryl Sandberg, Facebook’s chief operating officer.
Facebook’s revenue gains had been expected to slow this year because the company said it won’t keep increasing the percentage of ads shown in users’ News Feeds. That means it’s leaning on other growing areas, like Instagram, as well as new forms of advertising, such as those placed in live video. Meanwhile, the company has said it plans to substantially increase its spending on new data centers and engineers.
“There’s effectively no change in the outlook,” Chief Financial Officer David Wehner said in an interview. “We continue to invest aggressively to grow out the business for the long term.”
Zuckerberg showed no interest in speeding up the timeline for Facebook’s long-term projects, especially virtual reality, which is part of his 10-year plan.
“I don’t think that there is really a strategy to pull this in from 10 years to five, I just think it’s going to be a 10-year thing,” Zuckerberg said. “I would ask for the patience of the investor community in doing that because we’re going to invest a lot in this, and it’s not going to return or be really profitable for us for quite a while.”