FB - Facebook

[Spekulatius]

Their ability to continue to increase ad revenue in US/Canada amidst flat users (and I'd argue decreasing screen time) is impressive. They've said in the past the can't really increase core ad load much more, so either they're monetizing new channels (stories, messenger, etc) or rates are going up.

 

Most venture companies I think track their spend/metrics fairly closely. That's the key to the raising the next round.

 

I have yet to see my first ad from a venture capital / upstart company. I typically get ads from subscription services (NYT) or credit card companies etc. I guess it depends what they figure you.

 

Of course things like the data scandal matters to some extend, but if the coreusers don’t care much, than it’s just a “Salad Oil scandal”, regardless of what the WSJ or Engadget writes. FB has grown revenue by 39% YoY and trades at the same multiple than MSFT, which is growing in low teens. While MSFT is safer due to diversified revenue streams, such a huge valuation gap simply does not make much sense.

[johnny]

Most venture companies I think track their spend/metrics fairly closely. That's the key to the raising the next round.

 

They track their spend, but ultimately they're comparing customer acquisition cost against lifetime customer values, and that latter variable is necessarily just a market ebulience measure--it's the sort of input that's going to be extraordinarily pro-cyclical.

 

At the end of the day, it's just a series of black boxes. We don't know what the mature/venture split is on their revenues. We don't know quite how aggressive the venture side is being on their growth models. The great numbers this quarter just continue what is still the most puzzling trend to me: that the US/Canada market has, once again, shown the best growth in ARPU, not just in dollar but percentage terms.

 

On the other hand, my entire personal ad inventory has been totally swept--all the venture stuff about bra-delivery is gone and now it is now 100% mid-luxury SUV ads, either by manufacturers or dealerships. FB was able to tease out pretty quickly that I was in the market, so in these big purchases they probably have neutralized the "intent" edge that Google for Amazon might have. I can see the value to advertisers here: I went from considering two cars to considering about ten, much to my chagrin.

[cameronfen]

Most venture companies I think track their spend/metrics fairly closely. That's the key to the raising the next round.

 

They track their spend, but ultimately they're comparing customer acquisition cost against lifetime customer values, and that latter variable is necessarily just a market ebulience measure--it's the sort of input that's going to be extraordinarily pro-cyclical.

 

At the end of the day, it's just a series of black boxes. We don't know what the mature/venture split is on their revenues. We don't know quite how aggressive the venture side is being on their growth models. The great numbers this quarter just continue what is still the most puzzling trend to me: that the US/Canada market has, once again, shown the best growth in ARPU, not just in dollar but percentage terms.

 

On the other hand, my entire personal ad inventory has been totally swept--all the venture stuff about bra-delivery is gone and now it is now 100% mid-luxury SUV ads, either by manufacturers or dealerships. FB was able to tease out pretty quickly that I was in the market, so in these big purchases they probably have neutralized the "intent" edge that Google for Amazon might have. I can see the value to advertisers here: I went from considering two cars to considering about ten, much to my chagrin.

 

I agree venture spending is irrational and many VCs are funding loss making companies on the hope they can make in up in volume.  I dont think though, that this will have a permanent effect on Facebook's revenues.  I think new businesses are drawn to facebook not because it is more effective for them, but because they dont have the inertia of having a marketing department that always advertised on tv or with signage or in print. Sure when that bubble pops many startups will fail, but many of them will also be the blue chips of tomorrow and they will be on facebook.  If facebook has industry leading irr for marketing why would you expect this to be different for an internet company that has a market cap of 100 billion dollars?

 

Furthermore just a quibble: Europe ARPU grew 25% which is much better than most internet businesses.  If they can show they can turn even gdpr countries into cash cows what does that imply for Asia and Rest of World.  I dont think we should penalize facebook for growing NA ARPU even faster than this. 

[Spekulatius]

FB’s ARPU was ~$35/quarter in NA, ~$11 in Europe and ~$3 in Asia. Think about the potential , even if you adjust for income differences! This is better than buying KO in the late eighties , when their NA market was basically getting saturated but Growth in emerging markets was just getting started.

[gary17]

will fb last as long as coke?

[johnny]

FB’s ARPU was ~$35/quarter in NA, ~$11 in Europe and ~$3 in Asia. Think about the potential , even if you adjust for income differences! This is better than buying KO in the late eighties , when their NA market was basically getting saturated but Growth in emerging markets was just getting started.

 

In your Coke comparison, when coke started going into foreign markets, wouldn't most of those have shown extraordinary growth, in percentage terms, versus the (mature) US market?

 

As you say, the entire crux here is the foreign revenue potential; under normal circumstnaces, using US ARPU as a baseline, and income-adjusting it for other geographies would make the most intuitive sense to me. But we are being reminded every single quarter that there is something unusual/unique about the US market. We just aren't being told explicitly what it is.

[Gilp]

FB’s ARPU was ~$35/quarter in NA, ~$11 in Europe and ~$3 in Asia. Think about the potential , even if you adjust for income differences! This is better than buying KO in the late eighties , when their NA market was basically getting saturated but Growth in emerging markets was just getting started.

 

In your Coke comparison, when coke started going into foreign markets, wouldn't most of those have shown extraordinary growth, in percentage terms, versus the (mature) US market?

 

As you say, the entire crux here is the foreign revenue potential; under normal circumstnaces, using US ARPU as a baseline, and income-adjusting it for other geographies would make the most intuitive sense to me. But we are being reminded every single quarter that there is something unusual/unique about the US market. We just aren't being told explicitly what it is.

 

My guess is in US people have more money to spend + they actually spend it. As other countries use Facebook to get information/entertainment but don't actually willing to spend much money.

 

[Spekulatius]

FB’s ARPU was ~$35/quarter in NA, ~$11 in Europe and ~$3 in Asia. Think about the potential , even if you adjust for income differences! This is better than buying KO in the late eighties , when their NA market was basically getting saturated but Growth in emerging markets was just getting started.

 

In your Coke comparison, when coke started going into foreign markets, wouldn't most of those have shown extraordinary growth, in percentage terms, versus the (mature) US market?

 

As you say, the entire crux here is the foreign revenue potential; under normal circumstnaces, using US ARPU as a baseline, and income-adjusting it for other geographies would make the most intuitive sense to me. But we are being reminded every single quarter that there is something unusual/unique about the US market. We just aren't being told explicitly what it is.

 

My guess is in US people have more money to spend + they actually spend it. As other countries use Facebook to get information/entertainment but don't actually willing to spend much money.

 

In Asia, TV  and even print etc may still work better at this point. I don’t think small business have the sophistication to do ad campaigns in FB or Google yet. I don’t really know. Europe does not have the same penetration with respect of social media. Just as an anecdote , most of my friends from Europe aren’t on FB. I was invited in a pretty active Whatsup group of school friends recently and joined. I still haven’t seen any ad there.

 

Also on another note, if  I recall the CC correctly, the price per ad in NA was actually down this quarter a little, so the increased revenue must have come from more impressions.

[glorysk87]

Is there a decent estimate out there anywhere about how much of FB's revenue comes from venture funded consumer startups?

[cameronfen]

FB’s ARPU was ~$35/quarter in NA, ~$11 in Europe and ~$3 in Asia. Think about the potential , even if you adjust for income differences! This is better than buying KO in the late eighties , when their NA market was basically getting saturated but Growth in emerging markets was just getting started.

 

In your Coke comparison, when coke started going into foreign markets, wouldn't most of those have shown extraordinary growth, in percentage terms, versus the (mature) US market?

 

As you say, the entire crux here is the foreign revenue potential; under normal circumstnaces, using US ARPU as a baseline, and income-adjusting it for other geographies would make the most intuitive sense to me. But we are being reminded every single quarter that there is something unusual/unique about the US market. We just aren't being told explicitly what it is.

 

My guess is in US people have more money to spend + they actually spend it. As other countries use Facebook to get information/entertainment but don't actually willing to spend much money.

 

In Asia, TV  and even print etc may still work better at this point. I don’t think small business have the sophistication to do ad campaigns in FB or Google yet. I don’t really know. Europe does not have the same penetration with respect of social media. Just as an anecdote , most of my friends from Europe aren’t on FB. I was invited in a pretty active Whatsup group of school friends recently and joined. I still haven’t seen any ad there.

 

Also on another note, if  I recall the CC correctly, the price per ad in NA was actually down this quarter a little, so the increased revenue must have come from more impressions.

 

So the other thing to note, is strategically it's more important to bring people who dont have FB, insta, WhatsApp, messenger onto the platform than monetize.  Especially in Asia, ROW, and to a lesser extent Europe.  I'm sure they realize this and it could also be an intentional reason why ARPU doesn't rise in these places. 

[Spekulatius]

^ I agree, it’s like the Wild West- Grab the Land first, then figure out what to do with it. That’s why they build data centers to enable good connectivity in Asia for example. They know already that the eyeballs can be monetized, based on experience in NA and Europe.

[Mungerish]

FB’s ARPU was ~$35/quarter in NA, ~$11 in Europe and ~$3 in Asia. Think about the potential , even if you adjust for income differences! This is better than buying KO in the late eighties , when their NA market was basically getting saturated but Growth in emerging markets was just getting started.

 

In your Coke comparison, when coke started going into foreign markets, wouldn't most of those have shown extraordinary growth, in percentage terms, versus the (mature) US market?

 

As you say, the entire crux here is the foreign revenue potential; under normal circumstnaces, using US ARPU as a baseline, and income-adjusting it for other geographies would make the most intuitive sense to me. But we are being reminded every single quarter that there is something unusual/unique about the US market. We just aren't being told explicitly what it is.

 

My guess is in US people have more money to spend + they actually spend it. As other countries use Facebook to get information/entertainment but don't actually willing to spend much money.

 

In Asia, TV  and even print etc may still work better at this point. I don’t think small business have the sophistication to do ad campaigns in FB or Google yet. I don’t really know. Europe does not have the same penetration with respect of social media. Just as an anecdote , most of my friends from Europe aren’t on FB. I was invited in a pretty active Whatsup group of school friends recently and joined. I still haven’t seen any ad there.

 

Also on another note, if  I recall the CC correctly, the price per ad in NA was actually down this quarter a little, so the increased revenue must have come from more impressions.

 

The avg price decline was do to the growth in geographys that monetize at lower prices, not falling prices in N.A.or Can. From the call:

" In Q4, the average price per ad decreased 2% and the number of ad impressions served on our services increased 34%. Impression growth was primarily driven by ads on Instagram, including both feed and Stories as well as Facebook mobile News Feed. The year-over-year decline in average price per ad reflects an ongoing mix shift towards product services and geographies that monetize at lower rates. Payments and other fees revenue was $274 million, up 42%. Sales of Oculus Go and the launch of Portal contributed to the revenue growth in the quarter. "

 

A central part of my thesis for facebook is that they are in the early innings of monetizing all of the eyeballs and targeted ads. I remember paying $4k for a small help wanted ad in the Boston Globe in the early 1990's because they were had practically a monopoly on help wanted advertising in the area.

The fact that facebook "blue" feed is nearly maxed out in terms of # of ads without alienating users is a very good thing for pricing. Since it is still basically an auction format as far as I know,ad prices should continue to climb.

[johnny]

So the other thing to note, is strategically it's more important to bring people who dont have FB, insta, WhatsApp, messenger onto the platform than monetize.  Especially in Asia, ROW, and to a lesser extent Europe.  I'm sure they realize this and it could also be an intentional reason why ARPU doesn't rise in these places.

 

This is a great defense, and I'm a bit pissed I didn't consider it. Have they ever said anything to this effect in the calls?

 

]I don’t think small business have the sophistication to do ad campaigns in FB or Google yet.

 

This feels a bit inverted to me. It seems the entire zero-marginal-cost world of online ad auctions has had the primary effect of opening up advertising channels to very very small buyers that otherwise wouldn't have the scale/capital to say, buy a billboard or do a $4,000 single newspaper placement.

 

On the call they mentioned they have 7 million 'active advertisers' (unsure about the definition here). Maybe the idea here is that there are still some mom & pops that will be dragged kicking and screaming to the new world, so they're the remaining "untapped market".

[Mungerish]

Not sure where I read it but CBS has only 200 advertisers by comparison

[cameronfen]

So the other thing to note, is strategically it's more important to bring people who dont have FB, insta, WhatsApp, messenger onto the platform than monetize.  Especially in Asia, ROW, and to a lesser extent Europe.  I'm sure they realize this and it could also be an intentional reason why ARPU doesn't rise in these places.

 

This is a great defense, and I'm a bit pissed I didn't consider it. Have they ever said anything to this effect in the calls?

 

 

I have not heard anything, although they have made it clear they would monetize WhatsApp and messenger slowly for this reason and they do it for all their products when they are still in infancy, Insta, Stories....  I'm sure you can ask IR. 

[rogermunibond]

Facebook Turns 15: A Friendship No One Asked For https://nyti.ms/2UzJWpe

 

Ouch.  Having spent some time on the IG platform it seems the monetization strategy is most FOMO and getting brand and influences to project envy, desire, jealousy among users.  A lot of validation going on when actual users post their stories on products, experiences etc.  Psychologically is this different from ad strategies in other media, maybe not, but I think it will need to change or may run it's course.

[LounginMKL]

I don’t think small business have the sophistication to do ad campaigns in FB or Google yet.

 

Small local businesses (those on Yelp)  might not have the sophistication to do FB ads, but other small e-commerce businesses are in tune with FB/Google. These are the next generation of small businesses in the making.

 

https://medium.com/positiveslope/attack-of-the-micro-brands-c0b7835c3633

 

 

[colinwalt]

https://www.wired.com/story/germany-facebook-antitrust-ruling

 

 

FACEBOOK’S MASSIVELY LUCRATIVE advertising model relies on tracking its one billion users—as well as the billions on WhatsApp and Instagram—across the web and smartphone apps, collecting data on which sites and apps they visit, where they shop, what they like...

 

On Thursday, Germany’s Federal Cartel Office, the country’s antitrust regulator, ruled that Facebook was exploiting consumers by requiring them to agree to this kind of data collection in order to have an account, and has prohibited the practice going forward.

 

“Facebook will no longer be allowed to force its users to agree to the practically unrestricted collection and assigning of non-Facebook data to their Facebook user accounts,” FCO president Andreas Mundt said in a statement announcing the decision.

 

 

...[until now] authorities haven’t done a good job of articulating why privacy is an antitrust issue. Here, the German regulator makes it clear. “The FCO’s theory is that Facebook’s dominance is what allows it to impose on users contractual terms that require them to allow Facebook to track them all over,” Khan says. “When there is a lack of competition, users accepting terms of service are often not truly consenting. The consent is a fiction.”

[fareastwarriors]

How Facebook’s Tiny China Sales Floor Helps Generate Big Ad Money

 

 

https://www.nytimes.com/2019/02/07/technology/facebook-china-internet.html

[colinwalt]

https://www.wired.com/story/germany-facebook-antitrust-ruling

 

 

FACEBOOK’S MASSIVELY LUCRATIVE advertising model relies on tracking its one billion users—as well as the billions on WhatsApp and Instagram—across the web and smartphone apps, collecting data on which sites and apps they visit, where they shop, what they like...

 

On Thursday, Germany’s Federal Cartel Office, the country’s antitrust regulator, ruled that Facebook was exploiting consumers by requiring them to agree to this kind of data collection in order to have an account, and has prohibited the practice going forward.

 

“Facebook will no longer be allowed to force its users to agree to the practically unrestricted collection and assigning of non-Facebook data to their Facebook user accounts,” FCO president Andreas Mundt said in a statement announcing the decision.

 

 

...[until now] authorities haven’t done a good job of articulating why privacy is an antitrust issue. Here, the German regulator makes it clear. “The FCO’s theory is that Facebook’s dominance is what allows it to impose on users contractual terms that require them to allow Facebook to track them all over,” Khan says. “When there is a lack of competition, users accepting terms of service are often not truly consenting. The consent is a fiction.”

 

https://finance.yahoo.com/news/germany-gets-wrong-facebook-120602470.html

 

...why go after Facebook and not Google, the biggest fish of all? Google’s parent, Alphabet Inc., collects more data.

 

 

 

[cameronfen]

^^ You probably know this but because facebook is in the news and politicians are incetivized to win popularity of their citizens. 

[Jurgis]

https://www.wired.com/story/germany-facebook-antitrust-ruling

 

 

FACEBOOK’S MASSIVELY LUCRATIVE advertising model relies on tracking its one billion users—as well as the billions on WhatsApp and Instagram—across the web and smartphone apps, collecting data on which sites and apps they visit, where they shop, what they like...

 

On Thursday, Germany’s Federal Cartel Office, the country’s antitrust regulator, ruled that Facebook was exploiting consumers by requiring them to agree to this kind of data collection in order to have an account, and has prohibited the practice going forward.

 

“Facebook will no longer be allowed to force its users to agree to the practically unrestricted collection and assigning of non-Facebook data to their Facebook user accounts,” FCO president Andreas Mundt said in a statement announcing the decision.

 

 

...[until now] authorities haven’t done a good job of articulating why privacy is an antitrust issue. Here, the German regulator makes it clear. “The FCO’s theory is that Facebook’s dominance is what allows it to impose on users contractual terms that require them to allow Facebook to track them all over,” Khan says. “When there is a lack of competition, users accepting terms of service are often not truly consenting. The consent is a fiction.”

 

https://finance.yahoo.com/news/germany-gets-wrong-facebook-120602470.html

 

...why go after Facebook and not Google, the biggest fish of all? Google’s parent, Alphabet Inc., collects more data.

 

If this stands on appeal, they will go after Google too. Maybe even before that.

[Spekulatius]

I believed they will go after Google and possibly Amazon too. Germany and most other countries in the EU have laws governing the use of data. Germany has a “Datenschutzgesetz” since the 70’s. This happened, when people got worried about the state and police doing data mining to find terrorist (then the communist Rote Armee Fraktion), which caused a violent epterror wave in the 70’s. While the datamining was successful, a lot of people got worried (due to expirence from the Nazi state) that this sort of data mining would go too far, and a law was out in place in 1977.

 

While this is all great, the law and the regulators haven’t really kept up with the newer data collectors like FB, GOOG and AMXN and the like, with a few exception like google maps cannot show street fees of private residences etc. But I think the grace period is over and they will have content with much much more regulation to the original spirit of the law now, not just in Germany, but in the entire EU.

 

Also for a historical perspective, the US is one of the few developed countries that does not have a comprehensive law governing the use of data. The other countries are China and Russia. Also upsetting to me is the Patriot act, which became effective after 9/11. With that law, the privacy of data with respect to the state pretty much went out the window. I am not sure there is much to show for this.

 

 

And yes, I own FB stock, but that does not make the unregulated use of data right. The worst offenders of privacy are not GOOG or FB, they are the credit agencies, which pretty much make it their business model to sell private data. Stepping of the soapbox now.

[JayGatsby]

User data isn't as important to google. If I search for "toyota truck" that's all the data they need to show me ads related to buying a toyota truck. Most of their ad products don't let you specify beyond that anyway.

 

I was listening to a podcast yesterday where the guy said his customer acquisition cost on FB was up 4x over a few years ago. Just one piece of anecdata, but thought it was interesting. In his view the shotgun approach of targeting everyone on FB used to work, but now targeting is required. Not necessarily a bad thing. Most of what I see seems to support my view that prices are up, ad load is up, and user engagement is down. We'll see

[cameronfen]

User data isn't as important to google. If I search for "toyota truck" that's all the data they need to show me ads related to buying a toyota truck. Most of their ad products don't let you specify beyond that anyway.

 

I was listening to a podcast yesterday where the guy said his customer acquisition cost on FB was up 4x over a few years ago. Just one piece of anecdata, but thought it was interesting. In his view the shotgun approach of targeting everyone on FB used to work, but now targeting is required. Not necessarily a bad thing. Most of what I see seems to support my view that prices are up, ad load is up, and user engagement is down. We'll see

 

Maybe this comment belongs in the google thread, but user data is extremely important to any large tech company. Google even built android (and chrome) and offered them for free to collect more user data. Their search engine is built on user profiles and population behaviour.  Basically you feed in you personal online behavior into a machine learning algorithm (likely a neural network) and it uses this to decide what links to put where. That's all built on training on billions of people and probably trillions and trillions of searches.  Especially for big tech firms, data is absurdly valuable.  Google Brain the AI unit of google has by itself justified all the costs of google X in history.  Google X cost 3.5 billion this year alone.  Without data Google Brain would be worth nothing.

 

This is the problem with all companies, Facebook more so than any other because they are even more data dependent. People dont understand the massive amounts of money companies make with your data.  At the same time people may complain to politicians, but they dont leave facebook en mass or switch to duck duck go over google over data concerns.  This is why even with huge fines, companies like fb, amazon, and google will still try every trick in the book to get more data off you. 

 

GDPR is probably a good step if you want more data privacy (I for one dont really care that much the creepiness factor doesnt bother me as long as google and FB keep there products free), but even the absurd looking fines are not as much of a deterrent for tech companies as you think, because of how effectively they can monetize.