Thread by @borrowed_ideas

1/ Thread: $FB 3Q'22 Earnings Update

When Evan Spiegel was busy cajoling Apple during the disruptive iOS changes, Zuck understood the gravity and prepared FB quite well ahead of the changes.

But the battle seems to change every quarter. Now it's capital allocation.

2/ 3Q'21 topline grew 33.2% but since spending ramped up, incremental operating margin fell a lot.

As you will see in this thread, it may take quite some time before we see ~60-70% incremental operating margin from FB.

3/ DAU and MAU both +6% YoY

Revenue by geography YoY
North America +35%
Europe +31%
APAC +28%
RoW +50%

# of Ad impressions and price/impression in '21
Q1: +12%/ +30%
Q2: +6% / +47%
Q3: +9% / +22%

4/ Zuck started with the nuances of the challenges FB faces. Don't think his critics are afraid of coming across as prejudiced.

$FB invested $5 Bn in security so far in 2021.

"I believe that's more than any other tech company even adjusted for scale."

5/ Three priorities

I. Creators
II. Commerce
III. Next Computing Platform

"Reels will be as important for our product as Stories is. We expect to make significant changes to IG and FB next yr to further lean into video and make Reels a more central part of the experience"

6/ 18-29 yr old is now core focus for FB

"we are retooling our teams to make serving young adults their North Star rather than optimizing for the larger number of older people."

7/ Commerce is a multi-year journey. Plan is to work with a few biz that are doing well on FB, learn from their experiences, and then scale the solutions broadly next year.

8/ "We're building multiple generations of our VR and AR products at the same time as well as a new operating system, a development model, a digital commerce platform, content studio and, of course, a social platform."

9/ From next quarter, FB will segment Facebook Reality Labs (FRL) separately and expects it to eat away $10 Bn operating profit!!

FB is swinging at AR/VR pretty hard, will share in a bit how I think about it.

10/ iOS changes were indeed a headwind. Although FB didn't quantify, they mentioned without the changes, FB would see sequential, instead of flat, revenue growth.

It sounds more work is required, but doable over LT.

11/ FB enhanced its buyback significantly this quarter and announced $50 Bn buyback authorization. Cash on balance sheet now is $58.1 Bn.

I believe Zuck will use buyback as his machete if shareholders don't agree with his metaverse ambition.

12/ Outlook: 4Q'21 guidance $31.5-34 Bn (+16-25% YoY)

CY'21 expense narrowed to $70-71 Bn. But the real news is CY'22 expense guide is $91-97 Bn. 👀

Important to remember FB has a history of providing very aggressive expense guide which later is tampered down.

13/ Even capex guide for CY'22 is $29-34 Bn (+70% YoY at mid-point)

Some explanations here. Seems the increase in capex to enhance the core product experience whereas opex increase is due to FB's metaverse ambition.

14/ As I mentioned last q, FB doesn't have the shareholder base for speculative bets which is why the capital allocation concerns have been raised.

I expect this tension to grow in future, especially since Zuck seems to be focused on the decade whereas investors are on NTM P/E.

15/ My opinion is it is simply too early to have a dogmatic opinion on Zuck's AR/VR ambition in either direction. I have decided to educate myself on the topic for the next few quarters.

I actually registered for this after the earnings call 😂

facebookconnect.com/en-us/communit…

16/ Buying FB is betting on the intersection of media, communication, and tech. It's extremely dynamic and missing a big pivot will be VERY expensive.

Zuck seems to have conviction on AR/VR. We don't have to necessarily believe it now, but I most certainly won't laugh at it.

End/ I will cover $GOOG and $AMZN this week.

All my twitter threads here: mbi-deepdives.com/twitter-thread…

Edit: It's 3Q'21 Earnings Update. Unfortunately, I'm not living in the future.