It was quite a month for the largest social media network in the world, Facebook (NASDAQ:FB). On Jan. 31, it surpassed Wall Street's expectations for what seemed like the umpteenth time when it reported fourth-quarter and year-end results.
During the fourth quarter and full year, Facebook's sales rose by 48% and 49%, respectively, all while income from operating increased by 61% and 63%, respectively. With sales growing faster than costs, Facebook's margins continue to expand and surpass even the loftiest Wall Street estimates.
Even more impressively, Facebook ended the year with 2.13 billion monthly active users, of which 1.4 billion were active on its site daily. It also saw 89% of its advertising revenue derived from mobile devices during the fourth quarter, up 5 percentage points from the year-ago period. Facebook is interacting with more people than ever, and given the fact that it owns four of the seven most visited sites and apps -- Facebook, WhatsApp, Facebook Messenger, and Instagram -- its sphere of influence is growing.
Facebook puts its foot down on cryptocurrency ads
Of course, this also means that Facebook has the opportunity to quash up-and-coming ideas and technologies that don't align with its growth plan.
On Jan. 30, Facebook announced that it would be banning all cryptocurrency-related advertisements, which includes anything and everything related to bitcoin, as well as initial coin offerings, which are like initial public offerings of stock except for new virtual tokens. Rob Leathern, Facebook's product management director, said, "We've created a policy that prohibits ads that promote financial products and services that are frequently associated with misleading or deceptive promotional practices, such as binary options, initial coin offerings and cryptocurrency." Ouch.
Facebook's elimination of cryptocurrency ads is a big reason why bitcoin and digital currencies as a whole were crushed at the beginning of February. Remember, the company provides a portal to more than 2.1 billion people each month and 1.4 billion people a day. Assuming it chooses to monetize all four of its assets with ads at some point, that's billions of daily impressions likely lost to a cryptocurrency industry reliant on new investments.
It also slammed the door on any near-term crypto payment partnerships
However, this was hardly Facebook's only jab at the digital currency movement over the past month.
At Upfront Ventures' annual summit in Los Angeles during the first week of February, David Marcus, Facebook's vice president of messaging, sat down for an interview with CNBC's Julia Boorstin and virtually shut the door on any possibility of a cryptocurrency partnership or payment service in the near future. Said Marcus, "Payments using crypto right now is just very expensive, super slow, so the various communities running the different blockchains and different assets need to fix all the issues, and then when we get there someday, maybe we'll do something."
Mind you, Marcus isn't in any way against the idea of using Facebook's Messenger as a payment platform. He's actively encouraging its roughly 1.3 billion users to use the service to exchange money. As he told Boorstin, "When you want to pay someone you always have a conversation about it... Payments is really at home in a conversational environment." Marcus was also the founder of a mobile payments company known as Zong that was sold to PayPal in July 2011. He firmly believes in using social media to bridge the payment gap -- he just doesn't believe cryptocurrencies are the answer right now.
Marcus' commentary comes just a few weeks after rumors had swirled around bitcoin rival Litecoin that Facebook could be looking to partner with a cryptocurrency. These rumors turned out to be unfounded.
Facebook is right to be skeptical: Cryptocurrencies are either slow or untested
While virtual currency and blockchain enthusiasts probably disagree with Facebook's anti-crypto stance, the social media giant is right: Cryptocurrencies and their underlying blockchains are largely untested and/or slow.
Bitcoin, the world's largest virtual currency by market cap, and the one likeliest to be accepted by merchants globally, is slower than molasses relative to many of its peers. Sure, it's the most used digital currency for goods and services, but its massive open-source network has made consensus (i.e., getting 80% agreement from the bitcoin community) almost impossible when it comes to software upgrades. Not being able to implement the much-needed Segregated Witness (also known as SegWit) upgrade to its blockchain to boost capacity, lower transaction fees, and improve processing speeds has pushed average transaction settlement times beyond an hour, as well as catapulted its average transaction fee to $28. That's nearly the same cost as a bank wire transfer.
At the other end of the spectrum are lesser-known cryptocurrencies with considerably faster payment processing times and virtually no real-world testing. No business -- especially the size of Facebook -- is going to trust blockchain-based payments without first having been shown that this technology is scalable to hundreds of millions, or billions, of users. With some cryptocurrencies, those scaling tests completely degraded network processing speeds.
Though Facebook hasn't closed the door completely on cryptocurrencies down the road, the chances of it partnering on payments with bitcoin, Litecoin, or any peer-to-peer virtual currency in the near term might as well be zero.
Sean Williams has no position in any of the stocks or cryptocurrencies mentioned. The Motley Fool owns shares of and recommends Facebook and PayPal Holdings, but has no position in any cryptocurrencies mentioned. The Motley Fool has the following options: short March 2018 $200 calls on Facebook and long March 2018 $170 puts on Facebook. The Motley Fool has a disclosure policy.