Facebook (NASDAQ:FB) crushed it again when it reported its first-quarter results, beating analyst expectations for both revenue and earnings per share (EPS). But as usual, some of the most interesting takeaways from the quarter can be discovered in the social network's earnings call, where CEO Mark Zuckerberg, COO Sheryl Sandberg, and CFO Dave Wehner shared useful insight about Facebook's business.
Here are the four most interesting excerpts from the call.
It's time to build communities
Up until recently, Facebook's primary focus has been on helping users connect with friends and families. But Zuckerberg is shifting the company's focus away from connecting friends and families to building communities.
Here's Zuckerberg on how Facebook plans to do it:
Building a global community that works for everyone starts with building millions of smaller, supportive communities. This is especially important since membership in many physical communities is declining. We recently found that more than 100 million people on Facebook are members of what we call "very meaningful" groups, like parenting or rare disease support groups that are an important part of their support structure. My hope is to help more than a billion people join meaningful groups to strengthen our social fabric over the next few years.
70 million businesses are using Facebook Pages
Small businesses continue to turn to Facebook as a useful way to engage with customers. And the rate with which more businesses are using Facebook Pages is impressive. Sandberg said 70 million businesses are now using a Facebook Page, up from 65 million in Q4. Unsurprisingly, this trend is serving as a boon for Facebook's ad-driven business model.
Here's exactly what Sandberg said about businesses using Pages:
More businesses around the world are shifting to marketing on mobile. Over 70 million businesses are now using Facebook Pages around the world on a monthly basis, and more and more of them are becoming advertisers. We also recently announced that over 5 million businesses are actively advertising on Facebook, including more than 1 million in emerging markets. Most of these advertisers start by using our free Pages product because it's easy to use.
Facebook can't keep this incredible growth going forever
As Facebook has warned investors in recent quarters, the company's 54% year-over-year revenue growth in 2016, or even its 49% year-over-year revenue growth in its first quarter of 2017, aren't indicative of what investors should expect from Facebook's growth as the rest of the year plays out. Wehner explained:
With regards to revenue, we continue to expect that our ad revenue growth rates will come down meaningfully over the course of 2017. We expect that ad load will play a less significant factor in driving revenue growth after mid-2017. We also expect desktop ad revenue growth rates to slow in the third quarter when we begin to lap our efforts to limit the impact of ad blockers.
In addition, Wehner said Facebook anticipates rapid growth in expenses during the year. Specifically, Facebook expects 2017 GAAP expenses to increase 40% to 50% compared to 2016. With revenue expected to decelerate and expenses expected to rise sharply, this also means that Facebook's earnings growth will slow as the year goes on, as well.
Instagram boasts special advertising dynamics
With Instagram recently hitting 700 million monthly active users, the fast-growing photo- and video-sharing platform deserves more attention from Facebook investors than ever. While the company isn't breaking out Instagram's revenue for investors, management noted that Instagram is becoming a meaningful driver for Facebook's business.
Sandberg shared some insight into why Instagram is turning into such an advertising powerhouse:
We're pretty excited about what's happening in the Instagram ad space because Facebook and Instagram are the two most important mobile ad platforms. And there's a special property with Instagram, which is that the increasing visualization of ads and the creative canvas it offers with the science behind the Facebook targeting and measurement systems is really a pretty unusual combination.
All four of these aspects of Facebook's business -- Zuckerberg's new emphasis on building communities, rapid growth in Facebook Pages, an inevitable deceleration of business growth, and Instagram's growing importance to Facebook -- will be key developments for Facebook investors to watch throughout 2017.