Facebook Quarterly Earnings: What is the key takeaway?

Recently, Facebook released its quarterly earnings and, in what seems to be second nature for the tech giant, it once again defied expectations. The total revenue for the second quarter totaled to approximately 6.44 billion dollars, a 59% increase from this time last year. Net income totaled to approximately 2.1 billion, an 186% increase from last year, with earnings per share of $0.71, a far cry from the $0.62 that Wall Street analysts had predicted. Looking at its growth over time, it is interesting to note that rather than peaking at one point and consistently declining in terms of growth (though growth has technically peaked in 2014 at 70%), Facebook seems to have reversed this trend and has gained momentum in recent years. 

One of the biggest takeaways to get from Facebook's success is its ability to properly transition and accommodate for changing paradigms in the industry. In the tech industry's case, that is largely a shift from desktop-based to mobile-based experiences, due in no small part to the increased dependence on mobile technology from millennials such as myself. This is especially notable when you consider that mobile advertising accounts for 84% of its total sales in the last quarter (72% in the same quarter last year). When Facebook went public in 2012, mobile ad revenue was virtually inconsequential; as the mobile user base increased, mobile ad revenue increasingly became more relevant a to their annual revenue. These trends are illustrated by these two graphs from Financial Times. 

While Facebook's earnings have definitely made several Wall Street figures happy, its success does come with limits due mainly in part to "ad load". In essence, there is no longer enough space in one's newsfeed for additional ads and there is a limit to how many ads one is willing to tolerate before it hurts the user experience. To accommodate, Facebook could invest more resources into its messaging platforms, WhatsApp and Messenger, or build of the success of Instagram, a popular app among millennials. Granted, any chance of Facebook reducing the current amount of advertisements is nonexistent.

"We think we’re in a good zone on the right ad load and we do think there’s opportunity to grow that modestly, but as we look forward into 2017 we think it will be a less significant factor driving inventory growth." -Dave Wehner (Facebook CFO)

With the rapid changes in the tech field and in social media, it is apparent that for any company to thrive they need to adapt to changing trends and platform shifts. In Facebook's case, they were able to take advantage of said shift; however, to continue growing they will need to go further and continue adapting to emerging markets and trends. Facebook has taken strides recently to expand beyond the mobile ad revenue source, opening up the Messenger app to businesses and chat bots and making strides in emerging markets such as virtual reality (which given the success of Pokemon Go may not be too far-fetched). Regardless of whatever direction they go in the coming year, Facebook will most likely continue making use of mobile advertising. Considering how often I use Facebook on my phone and tablet, that may not be such a bad idea after all.

#StudentVoices

Ajay is a rising junior at the University of Maryland, College Park where he empowers student voices as a LinkedIn Campus Editor. He is interested in exploring opportunities and learning more about various fields such as management consulting, technology, and finance.

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