• Facebook shares are up ~8% after earnings with impressive revenue ($15B) and daily active user (1.56B) results. Revenue growth of 26% y/y is Facebook’s lowest since its 2012 IPO but still impressive for a company of Facebook’s size. DAUs and MAUs were both up 8% YOY despite bad press and privacy concerns. We expected last year’s Cambridge Analytica scandal and #DeleteFacebook movement to materially hurt engagement. As we again saw today, outcries were from a vocal minority and the vast number of people don’t care enough to stop using the social platform and risk feeling “out of the loop.”
• News Feed and Instagram feeds are at near capacity for ad load. Stories, particularly Instagram stories, are driving impression growth (~30%) but lowering average spend per ad (-4%). Pricing for stories will trend upwards as more advertisers learn how to use this new tool to engage potential customers.
• The expected FTC fine ($3B-$5B) hurts now and provides headline risk but does not change Facebook’s long-term story. The question will be whether or not this is a recurring story. Facebook’s massive spending on privacy and security of late makes the odds lower that it will be.
• Zuckerberg spoke a lot about building the digital equivalent of a living room (private platforms). He believes this more intimate form of communication could be a bigger opportunity than the town hall-esque public platforms (News Feed, Instagram) that exist today.
• Facebook has over a billion users still to monetize on its messaging platforms (WhatsApp, Messenger). Zuckerberg said this along with commerce and payments are a focus of his. He is more optimistic about the opportunity of transactions on WhatsApp and Messenger since they are more private. The rollout will be on a country by country basis and could be a growth driver for Facebook going forward.
• Ecommerce on Instagram will be rolled out very slowly and carefully. It will likely be a while before Instagram shopping has a material impact on its business. But when it does, it could be material.
• Oculus Quest, the first all-in-one virtual reality headset, will be launching this Spring. Zuckerberg is making a big bet that virtual and augmented reality will become the next major computing platforms over the next decade. If he’s right, which we think he will be in time, Facebook could be a very different company in the future.

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