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Facebook CEO points to 'video-first' future across its platform

Facebook Inc. continued to ramp-up its strategy for video in the fourth quarter of 2016, with CEO Mark Zuckerberg saying the company would eventually make a transition from short- to long-form video content.

On the company's Feb. 1 earnings call, several Facebook executives emphasized the company's growing focus on video and video advertising across its platforms, including photo-sharing site Instagram and messaging services WhatsApp and Messenger.

"We're going to keep being video-first across all our apps," Zuckerberg said.

In December 2016, the company introduced a dedicated video tab in its mobile app that displays videos from a user's friends, public figures and videos from Facebook Live.

"We're focusing more on shorter-form content to start. The biggest change that I think we're going to see in our news feed and our Explore tab is much more video inventory coming in as we work to make that business model work and click for people." The effort will likely lead to more longer-form content, the CEO said in response to an analyst's question on the call.

COO Sheryl Sandberg said the company's growing focus on video was also proving a boon for its advertising efforts. "One of the things that's really important in this is helping marketers understand that they need to optimize their videos for our platform," Sandberg said.

Facebook in 2016 expanded its use of dynamic ads, which are influenced by what a user looks at. For example, she noted, travel agencies can show ads based on specific travel dates, while retail stores can show customers the location of a nearby product.

Advertising revenues rose 53% in the quarter, to $8.63 billion from $5.64 billion in the prior-year period. Full year 2016 ad revenues were $26.88 billion, a 57% jump from prior-year revenues of $17.08 billion. The company said mobile ad revenues accounted for approximately 84% of its revenue for the 2016 fourth quarter.

"We believe our strong 2016 is inspired by the strong connection we can provide for businesses on our platform. In 2017 we'll stay focused on helping businesses grow," said David Wehner, the company's CFO. The average price per ad increased 3% and the total number of ad impressions served increased 49%, driven primarily by ads on Facebook and Instagram's mobile apps, he said.

Looking forward, however, Wehner said he expected ad revenues would be down in the first quarter of 2017, echoing a comment he made on the company's third-quarter call in October 2016.

The company kept up its hot streak of revenue growth over 50%, which some analysts had predicted might decline. In the fourth quarter of 2016, Facebook reported total revenue of $8.81 billion, up 51% from $5.84 billion in the year-ago period. For the full year, total revenue was $27.64 billion compared with $17.93 billion in 2015, a 54% change.

Facebook reported net income of $3.57 billion for the fourth quarter 2016, or $1.21 per share, 128% swing from aggregate net income of $1.56 billion, or 54 cents per share, in the prior-year period. On a non-GAAP basis, net income was $4.15 billion, or $1.41 per share, up from $2.27 billion, or 79 cents a share, in the prior-year period.

For the full year, the social media company reported net income of $10.22 billion, or $3.49 a share, a 177% jump from prior-year net income of $3.69 billion, or $1.29 a share. On a non-GAAP basis, full-year net income was $12.37 billion, or $4.23 per share, up from $6.52 billion, or $2.28 a share, in the prior year.

The S&P Capital Capital IQ consensus EPS estimate for the fourth quarter 2016 was $1.31 on a non-GAAP basis and $1.04 on a GAAP basis. For the full year, the consensus non-GAAP EPS estimate was $4.15 and the GAAP estimate was $3.09.

User growth remained robust, with Facebook reporting 1.86 billion monthly active users as of Dec. 31, 2016, a 17% increase from the prior-year period. Mobile MAUs were 1.74 billion as of Dec. 31, 2016, a year-over-year increase of 21%. Instagram now has more than 300 million monthly active users, Zuckerberg noted.

Focusing on the company's investments beyond its core platforms, the CEO said the company was "still early" in its plans for virtual reality. Zuckerberg said the technology's capabilities would apply particularly in areas such as gaming and education.

In response to an analyst's question, Zuckerberg also addressed ongoing debates about how the site moderates content, saying Facebook's content moderation could be improved through more advanced artificial intelligence technologies, rather than human moderators.

"We can do better with people but ultimately the best thing we can do is build AI systems that can watch a video and understand that it's going to be problematic and violates policies of our community ... and then just not show it to people before bad experiences happen and ... violent content gets spread through the platform," he said. "AI is both going to be great on showing people content that's really good and helping us enforce the community standards that we have to make sure that everyone has a good and fair experience."

Facebook shares were up nearly 3% at the conclusion of the day's trading, before the company released its earnings.