FB - Facebook

[GregS]

It seems to me a lot of investors don't particularly like using Facebook so there's a lot of doubt about whether they can sustain users and engagement.  Yet nearly every "normie" I know is addicted to the website, and when I see people they ask me about that trip or whatever else is going on that my wife posted about.  Even with data portability I don't think people start suddenly fleeing the website because Facebook is where everyone already is.  It's where most people keep up with everyone and with things/news you care about.  Users/engagement is going to slow just because of the already large numbers, but I'm doubtful we see a meaningful reversal.  And just about every Facebook non-user I know uses Instagram instead.  Talk to teens.

 

As for monetization, it was thought some time ago that Twitter might have an advantage because they have our interests even if Facebook has our identity.  The FB ads I would see were crap for years.  But over time as I've added pages and groups to my FB feed (skiing, investing in my case) the ads have become incredibly more relevant.  Light users aren't likely to see this because more data = better targeting.  Considering how many people, places, groups, orgs, businesses, etc have built their presence on this platform and connected to others, I really don't think that gets replicated easily.  Every interaction says something about your interests as a person and consumer and only the other tech behemoths like Google and Amazon can match it.

[clutch]

I don't know about you guys, but myself and many of my friends / families now use chat apps (group chats, specifically) to stay connected. I think people use FB mainly for entertainment values or news, not necessarily as a social network. Whether that can be a moat, I'm not sure, but the nature of competitors to FB seems to be changing.

[Guest longinvestor]

The sharp market reaction is because of some sense of an existential threat rather than a decline in growth rates or margin decline.

[walkie518]

I would say they have built an effective and wonderful advertising business.  At the same time, Instagram and other acquisitions have likely been the source of user gains. 

 

There are only so many people in the world who have access to internet either via a computer or cell phone.  Last I checked, China doesn't allow for facebook and the great unwashed likely don't use VPNs to get to Facebook.

 

FB's market cap may be greater than this year's total ad spend in the US.  Does this make sense? 

 

Oculus might be really cool, but when will that investment bear fruit that's material to the business? 

 

To me, it seems that Instagram and WeChat are keeping FB afloat.  Does anyone know if FB can triple-count users?

 

Setting aside bogus accounts for a moment, should someone be a MAU of Facebook, Instagram, and WeChat, does this count 3x? 

[cmlber]

Instagram and other acquisitions have likely been the source of user gains. 

....

Setting aside bogus accounts for a moment, should someone be a MAU of Facebook, Instagram, and WeChat, does this count 3x?

 

a) the MAU count is for Facebook only, so no, Instagram hasn't been the source of user gains.

b) the newly disclosed "family" MAU # (2.5Bn) is based on users who use at least one of the services, so no double counting.

[DCG]

As for monetization, it was thought some time ago that Twitter might have an advantage because they have our interests even if Facebook has our identity. 

 

 

Twitter's ad targeting is mind-blowingly terrible. They showed me an add yesterday for cat food. I haven't owned a cat in like 10 years, and never tweeted or liked a tweet remotely related to cats.

 

 

Facebook has so much useful data about users (although it sounds like users might be able to hide some/more of that data from advertisers in the future).

 

 

It sounds like Facebook is focusing on keeping users for the long-term, even if it means lower earnings in the near-term. While investors with the attention span of a gnat don't like that, it's probably the right thing to do for the long-term viability of the company.

[Shooter MacGavin]

I would say they have built an effective and wonderful advertising business.  At the same time, Instagram and other acquisitions have likely been the source of user gains. 

 

There are only so many people in the world who have access to internet either via a computer or cell phone.  Last I checked, China doesn't allow for facebook and the great unwashed likely don't use VPNs to get to Facebook.

 

FB's market cap may be greater than this year's total ad spend in the US.  Does this make sense? 

 

Oculus might be really cool, but when will that investment bear fruit that's material to the business? 

 

To me, it seems that Instagram and WeChat are keeping FB afloat.  Does anyone know if FB can triple-count users?

 

Setting aside bogus accounts for a moment, should someone be a MAU of Facebook, Instagram, and WeChat, does this count 3x?

 

you know that WeChat isn't owned by Facebook right?

[merkhet]

I think he means WhatsApp

[blainehodder]

 

FB's market cap may be greater than this year's total ad spend in the US.  Does this make sense? 

 

 

Why not?

[DooDiligence]

I agree that CoBF is a competitor in its niche & engagement is high here.  I am glad Sanjeev has not tried to monitize this to the max as this would annoy me & it is not needed to run the site.  It is not needed for FB either it is just that the expectations set by investors are creating incentives that are in opposition to its users.  This conflict can be overcome over short periods of time by folks doing the right thing but eventually the incentives overcome the good behavior & you get Google Finance, a marketing website that has some content/tools versus a content/tool website that has some marketing.

 

Packer

 

I'm quite sure that the monetization of CoBF comes in the form of robust discussions, both public and private, which enrich Sanjeev and all of us.

 

To paraphrase an earlier idea you posted, "make your platform (self) valuable to others and it (you) will become valuable."

 

The universe feeds altruism (mostly...)

[Parsad]

I agree that CoBF is a competitor in its niche & engagement is high here.  I am glad Sanjeev has not tried to monitize this to the max as this would annoy me & it is not needed to run the site.  It is not needed for FB either it is just that the expectations set by investors are creating incentives that are in opposition to its users.  This conflict can be overcome over short periods of time by folks doing the right thing but eventually the incentives overcome the good behavior & you get Google Finance, a marketing website that has some content/tools versus a content/tool website that has some marketing.

 

Packer

 

I'm quite sure that the monetization of CoBF comes in the form of robust discussions, both public and private, which enrich Sanjeev and all of us.

 

To paraphrase an earlier idea you posted, "make your platform (self) valuable to others and it (you) will become valuable."

 

The universe feeds altruism (mostly...)

 

That's quite correct!  The board has added tremendous value to my life...not in investment ideas (because I'm looking for stuff that you guys generally aren't) or ad revenue (I've never spent much time trying to grow it...in fact it has been stagnant for about 4 years). 

 

The value has come from knowing all of you, the friendships, the conversations, the perspectives (including Cardboard's political views) and the richness all of that adds to our day to day existence as investment nerds!  Cheers!

[DooDiligence]

As for monetization, it was thought some time ago that Twitter might have an advantage because they have our interests even if Facebook has our identity. 

 

 

Twitter's ad targeting is mind-blowingly terrible. They showed me an add yesterday for cat food. I haven't owned a cat in like 10 years, and never tweeted or liked a tweet remotely related to cats.

 

 

Facebook has so much useful data about users (although it sounds like users might be able to hide some/more of that data from advertisers in the future).

 

 

It sounds like Facebook is focusing on keeping users for the long-term, even if it means lower earnings in the near-term. While investors with the attention span of a gnat don't like that, it's probably the right thing to do for the long-term viability of the company.

 

Cat's are ubiquitous.

 

Apparently, Twitter thinks I'd like a goofy hat.

[JayGatsby]

Their MAU and DAU metrics are fairly meaningless in my opinion. Seems like you'd want something more like Nielsen ratings... how much are people actually using it? They've massively increased ad load, but it's impossible to tell if that's peanut buttering over declining engagement. Pricing should continue to be a positive for them... most people I talk to still find it one of the cheapest ways of advertising local businesses / events.

[walkie518]

Instagram and other acquisitions have likely been the source of user gains. 

....

Setting aside bogus accounts for a moment, should someone be a MAU of Facebook, Instagram, and WeChat, does this count 3x?

 

a) the MAU count is for Facebook only, so no, Instagram hasn't been the source of user gains.

b) the newly disclosed "family" MAU # (2.5Bn) is based on users who use at least one of the services, so no double counting.

 

Sorry, didn't mean WeChat but WhatsApp...

 

ok, so on b the "family" is based on one email account or on IPs?  I would think that IP-based would be problematic since you can have multiple users on one IP.  I assume they wouldn't use browser finger-printing, but they might match users on email or "sign on using facebook" type of hooks.

 

in other words, there could be double counting should someone wish to have an email account linked to fbook that's a junk email but hte intagram account is legit?  Don't most people have more than one email address that may (or may not) forward and/or be used to filter messages? 

[DooDiligence]

Their MAU and DAU metrics are fairly meaningless in my opinion. Seems like you'd want something more like Nielsen ratings... how much are people actually using it? They've massively increased ad load, but it's impossible to tell if that's peanut buttering over declining engagement. Pricing should continue to be a positive for them... most people I talk to still find it one of the cheapest ways of advertising local businesses / events.

 

FaceBook or Twitter?

[Liberty]

Ben Thompson on the recent Q:

 

https://stratechery.com/2018/facebook-lenses/

[LongTermView]

Looking at the top line numbers by geography, I don't understand why the 2Q18 call caused the stock to drop so much:

 

  2Q16    1Q17    2Q17    1Q-2Q        YoY

$3,212  $3,968  $4,556    14.8%  41.8%  US & Canada

$1,585  $1,905  $2,242    17.7%  41.5%  Europe

$1,025  $1,375  $1,569    14.1%  53.1%  Asia-Pacific

  $614      $784      $954    21.7%  55.4%  Rest of World

--------  --------  --------

$6,436    $8,032  $9,321    16.0%  44.8%

 

  2Q17      1Q18      2Q18    1Q-2Q        YoY

$4,556    $5,667    $6,251    10.3%  37.2%  US & Canada

$2,242    $3,036    $3,302      8.8%  47.3%  Europe

$1,569    $2,091    $2,316    10.8%  47.6%  Asia-Pacific

  $954    $1,172    $1,362    16.2%  42.8%  Rest of World

--------  ---------  ---------

$9,321    $11,966  $13,231  10.6%  41.9%

 

Coming into force on May 25th, GDPR was only a factor for a little more than 1/3rd of Q2. Hopefully the Q3 numbers will be solid.

 

[cameronfen]

Looking at the top line numbers by geography, I don't understand why the 2Q18 call caused the stock to drop so much:

 

  2Q16    1Q17    2Q17    1Q-2Q        YoY

$3,212  $3,968  $4,556    14.8%  41.8%  US & Canada

$1,585  $1,905  $2,242    17.7%  41.5%  Europe

$1,025  $1,375  $1,569    14.1%  53.1%  Asia-Pacific

  $614      $784      $954    21.7%  55.4%  Rest of World

--------  --------  --------

$6,436    $8,032  $9,321    16.0%  44.8%

 

  2Q17      1Q18      2Q18    1Q-2Q        YoY

$4,556    $5,667    $6,251    10.3%  37.2%  US & Canada

$2,242    $3,036    $3,302      8.8%  47.3%  Europe

$1,569    $2,091    $2,316    10.8%  47.6%  Asia-Pacific

  $954    $1,172    $1,362    16.2%  42.8%  Rest of World

--------  ---------  ---------

$9,321    $11,966  $13,231  10.6%  41.9%

 

Coming into force on May 25th, GDPR was only a factor for a little more than 1/3rd of Q2. Hopefully the Q3 numbers will be solid.

 

The stock only dropped 7 or 8% after the numbers. it was the conference call with the forecast of slowing of growth to around low 30 high 20% YoY and margin compression to 35ish% that caused most of the drop. 

[Liberty]

Interesting piece on FB:

 

https://www.gurufocus.com/news/714561/thinking-about-facebook

[Shooter MacGavin]

Looking at the top line numbers by geography, I don't understand why the 2Q18 call caused the stock to drop so much:

 

  2Q16    1Q17    2Q17    1Q-2Q        YoY

$3,212  $3,968  $4,556    14.8%  41.8%  US & Canada

$1,585  $1,905  $2,242    17.7%  41.5%  Europe

$1,025  $1,375  $1,569    14.1%  53.1%  Asia-Pacific

  $614      $784      $954    21.7%  55.4%  Rest of World

--------  --------  --------

$6,436    $8,032  $9,321    16.0%  44.8%

 

  2Q17      1Q18      2Q18    1Q-2Q        YoY

$4,556    $5,667    $6,251    10.3%  37.2%  US & Canada

$2,242    $3,036    $3,302      8.8%  47.3%  Europe

$1,569    $2,091    $2,316    10.8%  47.6%  Asia-Pacific

  $954    $1,172    $1,362    16.2%  42.8%  Rest of World

--------  ---------  ---------

$9,321    $11,966  $13,231  10.6%  41.9%

 

Coming into force on May 25th, GDPR was only a factor for a little more than 1/3rd of Q2. Hopefully the Q3 numbers will be solid.

 

You're looking at the wrong numbers.  2019 Consensus numbers were too high vs. Winley's margin guidance. So the algos just knocked the stock down based on that. Does it make sense from a valuation perspective?  No. not really. it's just the hedge fund/sell side quarterly earnings game.

[walkie518]

Looking at the top line numbers by geography, I don't understand why the 2Q18 call caused the stock to drop so much:

 

  2Q16    1Q17    2Q17    1Q-2Q        YoY

$3,212  $3,968  $4,556    14.8%  41.8%  US & Canada

$1,585  $1,905  $2,242    17.7%  41.5%  Europe

$1,025  $1,375  $1,569    14.1%  53.1%  Asia-Pacific

  $614      $784      $954    21.7%  55.4%  Rest of World

--------  --------  --------

$6,436    $8,032  $9,321    16.0%  44.8%

 

  2Q17      1Q18      2Q18    1Q-2Q        YoY

$4,556    $5,667    $6,251    10.3%  37.2%  US & Canada

$2,242    $3,036    $3,302      8.8%  47.3%  Europe

$1,569    $2,091    $2,316    10.8%  47.6%  Asia-Pacific

  $954    $1,172    $1,362    16.2%  42.8%  Rest of World

--------  ---------  ---------

$9,321    $11,966  $13,231  10.6%  41.9%

 

Coming into force on May 25th, GDPR was only a factor for a little more than 1/3rd of Q2. Hopefully the Q3 numbers will be solid.

 

You're looking at the wrong numbers.  2019 Consensus numbers were too high vs. Winley's margin guidance. So the algos just knocked the stock down based on that. Does it make sense from a valuation perspective?  No. not really. it's just the hedge fund/sell side quarterly earnings game.

I was under the impression that the drop was likely the result of Facebook hitting a ceiling for MAU? 

 

[bonkers]

Can't speak for anybody else, but in my eyes it's all due to guidance.

 

The guidance changed FB's story dramatically, in fact so much, that the guidance is hard to believe.

• BEFORE: It used to be 45-55 % growth with expanding margins (to maybe EBIT-margin of 60%), of course with a gradual slowdown once their share of ad market gets too big.
  
• NOW: They say growth will slow down at least temporarily, who knows if it will resume or keep slowing down. And EBIT-margins will head down to 35 %, who knows if they will get a bit higher later on.
  

If FB stock previously looked like a good deal at a higher price, it now looks uninteresting even with this much lower price.

 

The business is certainly strong. But trying to second-guess their guidance is too speculative for my taste.

[LounginMKL]

Playing Monday quarterback a bit- the plan to ramp up headcount can be seen in FB's aggressive approach in office space in SF. In a typical "move fast" fashion, Facebook went from minimal presence to being the 3rd largest tech tenant in SF. All in less than 12 months.

 

https://sf.curbed.com/2018/5/14/17353094/facebook-park-tower-250-howard-lease-sf

 

The quick calc is that the two major leases will provide 1.19M sqft, assuming 150 sqft/employee (open office layout), FB is planning capacity to add ~7,800 employees.

[Parsad]

It's a temporary blip...they are saying that higher security spending will decrease net margins...revenues will still be growing quite rapidly.  Within two years, margins will rebound as they probably won't be spending as much on security upgrades.  Of the FAANG stocks, Apple and Facebook are the only ones trading at a reasonable price.  Cheers!

[gary17]

It's a temporary blip...they are saying that higher security spending will decrease net margins...revenues will still be growing quite rapidly.  Within two years, margins will rebound as they probably won't be spending as much on security upgrades.  Of the FAANG stocks, Apple and Facebook are the only ones trading at a reasonable price.  Cheers!

 

AGREED!