A couple weeks removed from another strong earnings announcement, and despite investor's ho-hum reaction, CEO Mark Zuckerberg, COO Sheryl Sandberg, and the rest of the Facebook (META -4.13%) team are hitting on all cylinders. There weren't a ton of surprises last quarter, spending was up as expected, revenues and earnings both jumped significantly, and monthly average users, or MAUs, continued to inch up.
But what about the future? Facebook's earnings report and subsequent call made several things clear in terms of what investors should expect going forward -- for this year and beyond. Much of what we saw and heard recently coincides with Zuckerberg's plans for Facebook over the next three, five, and 10 years. Here are several things investors can expect to see from Facebook.
Spending will continue
Heading into Facebook's recent Q4 and 2014 earnings announcement, CFO Dave Wehner forewarned investors that expenses would jump by as much as 70%. Turns out, Wehner undershot Facebook's spending. On a GAAP (including one-time items) basis, expenses jumped to $2.72 billion -- up 87% from 2013's Q4. What did Facebook spend all that money on? The biggest checks were written for research and development, which skyrocketed to $1.1 billion from last year's $408 million.
Sandberg mentioned during Facebook's conference call a good portion of the research and development spending hike was used to fine-tune its ad-related measuring tools, and beef up infrastructure: both necessary pursuits. Going forward, as per Wehner, 2015 will see more overhead increases to the tune of 50%-75% above 2014's inflated costs.
Patience is a virtue
As Zuckerberg said when outlining Facebook's long-term objectives, and reiterated this past quarter, properties like WhatsApp and Messenger won't boost revenues in the near-term. The objective is to grow MAUs first, and monetize later. Like investing, assimilating and monetizing acquisitions like WhatsApp is a marathon, not a sprint.
As for Instagram and virtual reality manufacturer Oculus, those should begin paying dividends sooner as opposed to later. That said, a timeline for fully monetizing Instagram was conspicuously absent on the Jan. 28 earnings call. However, there were no uncertainties surrounding Facebook's plans for video.
YouTube, meet Facebook
Facebook has been toying with rolling out video across its site for some time now. There's no denying its potential: just testing video spots on Facebook commanded a whopping $1 million a day from advertisers "lucky" enough to take part in the experiment. The reason Facebook, as well as Google's (GOOG -1.10%) (GOOGL -1.23%) YouTube property, has a seemingly unlimited upside is because video ads work, and marketers will pay for results.
Additionally, video ads are one of the fastest growing areas in digital marketing. Video spots generated just shy of $6 billion last year, and that's expected to grow to nearly $8 billion this year. Not surprisingly, YouTube dominates video today, accounting for nearly 19% of the overall market. But with Facebook going all in, and its user's already eyeing over a billion videos a day, Google's YouTube is going to have a fight on its hands.
Stagnant user growth
Facebook MAU growth will continue to trickle up, as it did last quarter, rather than pop by leaps and bounds. Facebook and its 1.39 billion MAUs are "just" 40 million more than in 2014's Q3, which may be disconcerting to some.
But consider this: Facebook already counts nearly half the people in the world that have Internet access -- about three billion at last count -- as a user, so until Zuckerberg's Internet.org initiative takes hold there's only so much room to grow. Which accounts for Facebook's emphasis on the usage of its other properties, as well as focusing on user engagement, already an area of strength. A whopping 890 million of Facebook's "friends" are daily average users, or DAUs, 18% more than a year-ago.
All things mobile
It seems almost absurd now, but it just a couple of years ago investors and industry pundits were bemoaning Facebooks lack of a mobile presence, let alone generating revenues from users on the go. Today, nearly 1.2 billion of its MAUs are mobile, and more impressively, just shy of 70% of Facebook's ad revenues last quarter came from mobile -- a 53% improvement from a year ago. And if not for the strong dollar negatively impacting exchange rates, mobile ad revenues would have increased 58%.
In the months and years ahead, Zuckerberg and team will continue building mobile solutions and revenues as a percentage of the whole. The world isn't going mobile anymore; it is mobile. And all the yet-to-be-connected users around the world? For many, a smartphone or other inexpensive mobile device will be the method of choice to join Facebook's 1.39 billion fans.
