Mike Isaac

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Facebook’s Q3: Marketers Love Us — Teens, Slightly Less So

Facebook scored another big beat on Wednesday, as the company released its third-quarter earnings numbers to a happy investor crowd.

Making money from mobile users — once considered a grim prospect for the social giant — has come faster than many could have anticipated; mobile revenue now accounts for nearly half of all ad revenue for the company. Growth is also up across the board in terms of user numbers.

Alas, that happiness was short-lived; after the stock skyrocketed 12 percent in after-hours trading to top more than $55, shares took a nosedive on the news that the company saw “a decrease in daily users — specifically among younger teens” in its estimates. In mere minutes, the stock lost nearly $18 billion in market value.

While that’s certainly a problem the company has to solve, most of the call was fairly good news — ARPU is up, CapEx is down and mobile is humming along nicely.

Read my live coverage of the conference call with CEO Mark Zuckerberg, COO Sheryl Sandberg and CFO David Ebersman from earlier today, below.


2:02 pm: And we’re off!

2:02 pm: Mark Zuckerberg starts us off. “We continue to see strong overall engagement, especially in mobile.” No kidding.

2:03 pm: Zuckerberg drops some more impressive stats, playing up all the mobile usage. (Like I said, mobilemobilemobile.)

2:03 pm: The first Internet.org reference.

Zuckerberg is huge on this, his initiative to “connect the world” and bring the Web to the many developing countries that aren’t online.

“We believe we’re in a unique place to help encourage growth of the internet,” he said.

2:05 pm: So Zuckerberg playing up the Onavo acquisition, which Facebook made a few weeks ago. Basically helps with data compression on smartphones. That helps bring down the amount of data your smartphone uses.

Something to think about — relatively small network using Onavo. Perhaps Facebook will be able to increase that reach?

2:07 pm: Mark Zuckerberg says “Um,” stammers a second. Whoopsie.

2:07 pm: So we’re talking about graph search now. Which is funny, since we really haven’t heard about that product since it launched at the beginning of the year.


2:08 pm: Instagram! Messenger! These are the keys to the future!

Makes sense. Everyone loves photos. And messaging services are going gangbusters these days.

2:09 pm: Huh. Zuckerberg bullish on artificial intelligence technologies. Doesn’t really go into much detail, but highlights a past acquisition FB has made.

We should probably revisit that thought.

2:10 pm: “Our ads rule.” –Zuck, in a nutshell

2:11 pm: “We don’t build services to make money, we make money to build better services.” Quoting himself from his original S-1 letter.

2:11 pm: And now Sheryl Sandberg.

Surprise! She plays up mobile ad revenue.

As she should — the shift is really remarkable.

2:12 pm: Priorities in the coming quarters … mobile.

2:12 pm: Okay, here we go. Sandberg calls out a plethora of social companies by name — including Twitter and Snapchat — stating how much more time people spend on Facebook compared to all the others combined.

2:13 pm: Sandberg talks about how much marketers love Facebook. Good reminder, considering the major diss Forrester Research sent its way this week.

2:14 pm: Sandberg says mobile app install ads are “going very well.”

No real detail there. Would love to have some numbers on this particular ad unit.

2:16 pm: More talk about how awesome Facebook marketing is.

2:17 pm: Cue CFO Ebersman now.

2:17 pm: Points out that the daily active users on the Web are declining — though slightly.

2:18 pm: Woah. Ebersman acknowledges that there is indeed some dip in teen engagement on Facebook — though couches that in very jargony terms about how those details are “of questionable statistical significance.”

2:20 pm: That’s a big deal. Just a quarter ago, Zuckerberg himself was rebutting this idea big time.

2:20 pm: No wonder Zuckerberg wants to buy Snapchat so badly.

2:22 pm: ARPU is up! That’s good.

2:22 pm: Lots of numbers. Expenditures are pretty big at $284 million — to be expected, as Facebook continues saying that it’s willing to reinvest in its business over time.

2:24 pm: Payments revenue expected to be down next quarter.

Significant, yet also not the bulk of Facebook’s business.

2:25 pm: Facebook expects it won’t spend as much next year as it thought it would, but will still spend quite a bit — about $1.4 billion.

2:25 pm: Q&A time! A question on geotargeted ads.

2:26 pm: To backtrack a bit, payment revenue will be down because Q4 last year was measured over four months, not three. So makes sense.

2:27 pm: Sandberg says Facebook needs to focus on proving ROI to advertisers.

Likely some of the experiments in the company’s payments sector gonna go toward this.

2:29 pm: Sandberg reassures that it’ll continue to be easy for marketers to buy ads on Facebook. But still playing up proving ROI. “Driving our growth, going to continue to.”

2:31 pm: Zuckerberg talking about product experience over time.

Essentially, proving ROI can help small businesses understand their customers over time.

“Right now I think the Facebook experience is very push-based. … if we do a good job, we should be able to create more value …”

Basically another boost for the “knowledge economy.”

2:33 pm: Finally, a question on video. We’ve been waiting for Facebook to roll out video ads for quite a while now.

2:34 pm: Nope. No talk of video.

2:36 pm: A question on video launch on Instagram. How does that shape your thinking about video ads?

Good question.

2:37 pm: Wowza — an aside. All that after-hours market rallying is erased when investors heard about the decrease in younger teen engagement.

2:37 pm: Zuckerberg says Instagram video doing well! But they’re being careful because they don’t want to screw up how amazing Instagram is.

Sandberg notes that Facebook already has video ads — just not the autoplaying video ads these analysts are talking about.

2:40 pm: Some analyst’s line cut out and we are all sitting here in silence.

2:40 pm: Awkward.

2:40 pm: A question on why operation expenditures are lower than expected.

Ebersman says they’re trying to be disciplined in how they do it.

2:42 pm: Slower hiring ramp up also accounts for this. Perhaps a dearth in talent?

2:42 pm: Zuckerberg says a lot of the engagement on Facebook is day to day.

Sorry, can’t hear. My dogs are barking at a squirrel outside.

2:43 pm: Ah, some more about graph search. Basically talking about how it’s a long play, a way to organize the large corpus of knowledge the site holds. (His words.)

2:44 pm: Vague question from analyst, vague response from Zuckerberg. Wholly unimportant.

2:45 pm: So we’re having a high-level conversation about Facebook’s abilities to search things.

Interesting part here is that he’s not making a direct comparison to Google. Says it’s rather about surfacing the different insights and relevant data inside Facebook.

2:48 pm: Sandberg says they believe FB hosts more than 20 million small business pages (though a fraction of those are likely advertisers).

“It’s really difficult to get small businesses to utilize tech” like Facebook, she cautions.

2:49 pm: I get that. Also, I wonder what the return on a small business’ Facebook page actually is.

After all, how much attention will your Facebook business page receive if you aren’t a top 100 — or even top 500 — brand?

2:52 pm: I am genuinely curious about that.

2:52 pm: Question about mobile app install ads!

Ebersman didn’t give me any details before, doubt he will now.

2:53 pm: Yep. Sandberg says “developers are a really interesting place for us.” Think they have the best mobile ad product in general (swipe at Twitter!), gives Facebook an opportunity to both attract developers and sell more ads.

2:54 pm: Again, just an “interesting area” for Facebook. I feel like this is downplaying it, though.

2:55 pm: Yes! Smart analyst asks smart question about hashtags. Can you use them for ad targeting?

2:55 pm: Zuckerberg downplays that.

But says the company is putting more effort into public content. “There’s a large set of content that is public which is often high quality content as well.”

2:56 pm: I.e. — watch out, TWTR.

2:56 pm: A question on how well the trending topics are doing.

In other words — all those products you’re aping from Twitter, how’s that working out for you?

2:56 pm: Zuckerberg says, “Doing well.”

Also, Zuckerberg says public content focus isn’t anything new for Facebook — more that the company is doing it better.

Not sure if I buy that.

2:58 pm: Rich Greenfield from BTIG asks about Instagram ads.

How are you going to do it? New types of ads coming?

2:59 pm: Sandberg defends how good all of Facebook’s ads are. Small test with Instagram right now.

3:02 pm: Sandberg ends the call with a big emphasis on making it easier for marketers to buy Facebook ads. Also plays up the opportunity of SMB and long-tail.

3:03 pm: And that’s a wrap!

Till next time.

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Another gadget you don’t really need. Will not work once you get it home. New model out in 4 weeks. Battery life is too short to be of any use.

— From the fact sheet for a fake product entitled Useless Plasticbox 1.2 (an actual empty plastic box) placed in L.A.-area Best Buy stores by an artist called Plastic Jesus