1/ Thread: $FB 2Q’21 Update
Everyone sort of expected Facebook to post a big quarter. It was big indeed, but wasn’t quite jaw dropping big!
I found interesting details about ad inventory (there was a great answer from Sheryl), metaverse etc. from this call. Let’s unpack.
Everyone sort of expected Facebook to post a big quarter. It was big indeed, but wasn’t quite jaw dropping big!
I found interesting details about ad inventory (there was a great answer from Sheryl), metaverse etc. from this call. Let’s unpack.
2/ FB’s incremental margins are just as juicy as GOOG’s.
What a wonderfully long, scalable, and profitable secular theme it has been for the last decade!
What a wonderfully long, scalable, and profitable secular theme it has been for the last decade!
3/ DAU 1.91 Bn +7% YoY; MAU 2.9 Bn +7%; Family DAP 2.76 Bn +12%
In 2Q’21, # of impressions +6%, avg price/ad +47%
In 1Q’21, # of impressions +12%, avg price/ad +30%
In 2Q’21, # of impressions +6%, avg price/ad +47%
In 1Q’21, # of impressions +12%, avg price/ad +30%
4/ FB shareholders want more ad inventories without damaging the UX. That bit is clear, but should we want higher or lower price/ad?
I have read a lot of debate here and elsewhere on this topic. Sheryl had this to say on this:
I have read a lot of debate here and elsewhere on this topic. Sheryl had this to say on this:
5/ “Once you are really incentivized within an auction to find the thing that is returning for you, that's almost always the thing that is the most relevant for people who're seeing the ads. And I think that's been a good system and good pressure within the system going forward.”
6/ Why did impression grow just 6%?
Two reasons.
Main reason is elevated usage amid Covid (aka tough comp), but also an increasing shift to video which tend to have lower impression per engagement.
Two reasons.
Main reason is elevated usage amid Covid (aka tough comp), but also an increasing shift to video which tend to have lower impression per engagement.
7/ What are the future growth opportunities for ad inventory?
Video.
“Video now accounts for almost half of all time spent on Facebook, and Reels is already the largest contributor to engagement growth on Instagram.”
Video.
“Video now accounts for almost half of all time spent on Facebook, and Reels is already the largest contributor to engagement growth on Instagram.”
8/ Reels ads now available in 175 countries.
“we're seeing engagement and effectiveness parallel to some of our other products.”
“we're seeing engagement and effectiveness parallel to some of our other products.”
9/ FB’s ad business is so big that Zuck indicated e-commerce will take quite some time to have a meaningful impact on numbers.
Don’t use your EV/GMV multiple just yet.
Don’t use your EV/GMV multiple just yet.
10/ WhatsApp payment now available to everyone in India and Brazil.
“we're making Facebook Pay available outside of our apps for the first time, which means that you're going to start seeing it as a checkout option on the web”
“we're making Facebook Pay available outside of our apps for the first time, which means that you're going to start seeing it as a checkout option on the web”
11/ On VR/AR: “The most popular apps on Quest are social, which fits our original thesis here that virtual reality will be a social platform”
12/ Outlook: YoY revenue growth in 3Q and 4Q is likely to “decelerate significantly on sequential basis”.
Jefferies Analyst probed whether it is 2-3 points decel or like 5-7 points. CFO didn’t specify, just mentioned “modest”.
Jefferies Analyst probed whether it is 2-3 points decel or like 5-7 points. CFO didn’t specify, just mentioned “modest”.
13/ 2021 opex outlook unchanged $70-73 Bn. But that implies 39% YoY opex growth in 2H vs 28% in 1H.
Too high?
I’m going to leave this hall of fame chart here (I need to update this by next quarter).
Too high?
I’m going to leave this hall of fame chart here (I need to update this by next quarter).
https://twitter.com/JerryCap/status/1118133251237924871
14/ Metaverse. What is it?
“It's a virtual environment. We can be present with people in digital space. And u can kind of think about this as an embodied Internet that u're inside of rather than just looking at. We believe this is going to be the successor to the mobile Internet
“It's a virtual environment. We can be present with people in digital space. And u can kind of think about this as an embodied Internet that u're inside of rather than just looking at. We believe this is going to be the successor to the mobile Internet
15/ “In many ways, the metaverse is the ultimate expression of social technology.”
“In the coming years, I expect people will transition from seeing us primarily as a social media company to seeing us as a metaverse company.”
“In the coming years, I expect people will transition from seeing us primarily as a social media company to seeing us as a metaverse company.”
16/ Zuck is clearly excited about this, but I can already sense a tension between shareholders and Zuck’s metaverse ambition.
17/ FB is extremely high margin, high growth company that generates a lot of cash but trades at very reasonable multiple because of terminal value/regulatory concern.
FB doesn’t have shareholders base of $SNAP which may be more conducive to speculative bets such as metaverse.
FB doesn’t have shareholders base of $SNAP which may be more conducive to speculative bets such as metaverse.
18/ So the question is what is the cost of this speculative bet.
Evercore analyst indicated $5 Bn/year and asked the Dave whether they are in the ballpark. CFO didn’t comment.
Evercore analyst indicated $5 Bn/year and asked the Dave whether they are in the ballpark. CFO didn’t comment.
19/ If it’s $5 Bn/yr, as a shareholder, I don’t mind giving one of the best founders to pursue what he thinks to be the next big thing.
Plus if FB posts ~50-60% operating margin in 2-3 years, regulatory vultures will circle around and cause some unwanted problems anyway.
Plus if FB posts ~50-60% operating margin in 2-3 years, regulatory vultures will circle around and cause some unwanted problems anyway.
20/ Probably best if we let Zuck incinerate some cash each year so that he can sustain his empire for decades!
One good thing, I believe, is the current stock price doesn’t really probe you these potentially awkward questions such as what is AR/VR or WhatsApp worth.
One good thing, I believe, is the current stock price doesn’t really probe you these potentially awkward questions such as what is AR/VR or WhatsApp worth.
21/ BofA analyst indicated 20% FB job openings are in Oculus (but <2% revenue), so Zuck is going deep to make metaverse reality.
I will read Matt Ball’s 9-part Metaverse series when FB becomes >$1.5 Tn market cap.
matthewball.vc/the-metaverse-…
I will read Matt Ball’s 9-part Metaverse series when FB becomes >$1.5 Tn market cap.
matthewball.vc/the-metaverse-…
End/ I will cover $AMZN tomorrow.
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You can find all my twitter threads here: mbi-deepdives.com/twitter-thread…
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