Facebook's ambitious new efforts are bearing fruit, but not money
Apr 23, 2015, 05:51 IST
Justin Sullivan/GettyFacebook trotted out a handful of impressive stats during its quarterly earnings call on Wednesday: Its users now watch 4 billion videos every day, conduct 1 billion daily searches from their mobile devices, and account for 10 percent of the world's Internet phone calls. What do investors think? To judge by the 2% drop in Facebook's stock after hours, Wall Street's reaction appears to be "that's all nice, but show me the money." Facebook's revenue growth rate slowed in the first three months of the year. Revenue came in at $3.54 billion, a tad shy of the $3.56 billion expected by analysts, and up 42 percent year-over-year. In the first quarter of 2014, by contrast, Facebook's revenue accelerated at a 72% pace. What's more, Facebook's operating expenses in Q1 swelled and its profit margins got pinched. None of this should have been a big surprise. Facebook warned in January that 2015 was to be the year of investments. The company's top brass walked through the reasons for the spending on Wednesday: Facebook needs to enhance its core services, such as the Facebook and Instagram sites, invest in messaging products and its ad business, and invest in future opportunities such as virtual reality and Internet.org (Facebook's effort to offer Internet access in emerging markets)The problem is that Wall Street has a tendency to take a myopic view on things. These initiatives require a lot of money and they aren't generating cash yet. Video ads are probably the closest thing Facebook has to a significant near-term money-maker. But when asked, Facebook executives refused to provide any details on how the business is doing. While the total number of video views has exploded to a whopping 4 billion a day, Facebook would not say how many of those videos are video advertisements. And Facebook COO Sheryl Sandberg noted that some video ads could actually cannibalize other Facebook ads, since a marketer who runs a video ad may do so in lieu of buying a regular newsfeed ad on Facebook.The recent effort to sell ads on Instagram, Facebook's mobile photo-sharing service, also holds promise. But Zuckerberg stressed that Facebook will continue to take a go-slow approach to monetizing the service. "There's more inventory that we can open up on Instagram over time because it's so early," he said. "But we're going to do that once we get to formats that are working well for businesses and that we feel really good about from a consumer experience."What about those voice over IP calls that Zuckerberg said now account for 10 percent of the global market, will you ever charge money for that, asked one analyst? No dice, said Zuckerberg.The Oculus virtual reality headset, a business that Facebook acquired for $2 billion last year, still does not have a ship date.Meanwhile, ambitious projects such as search and artificial intelligence have plenty of potential. But Facebook will likely need to spend a lot more money on people and equipment before they start to bear fruit. The fact that Facebook is investing in all these new efforts rather than complacently living off a healthy mobile ad business is probably a good move. But the company will have to figure out a way to convince investors that their patience today will pay off tomorrow.