Facebook (FB 0.55%) reported better-than-expected financial results for the third quarter, with revenue jumping 29% year over year to $17.65 billion. That growth was driven primarily by a 37% increase in ad impressions across Facebook's properties, including Instagram Stories and Instagram Feed. But the biggest contributor to Facebook's ad impressions, according to CFO Dave Wehner, was the core Facebook News Feed product.
One contributing factor to that impression growth was less internal promotion in international markets, particularly Asia-Pacific, which unlocked ad inventory for outside bidders. Asia-Pacific notably saw the fastest revenue growth of all of Facebook's reporting regions.
On the follow-up call, Wehner also noted, "We saw good feed engagement growth in U.S. and Canada." That may came as a surprise to many investors in the tech company after considerable backlash against Facebook in North America surrounding election integrity, political speech, data protection, the spread of misinformation and disinformation, and an overall negative trend in the sentiment surrounding Facebook's core product. Nonetheless, users can't stop logging in.
Image source: Facebook.
Creating a better News Feed
About two years ago, Facebook overhauled its News Feed algorithm to focus its content on meaningful social interactions. The emphasis shifted from the most engaging public content and viral videos to content that was more unique to Facebook. Mark Zuckerberg felt it would lead to an overall decline in time spent on Facebook, but users would get more value out of that time, leading to a healthier sentiment about the product. That would be more beneficial long-term than optimizing for time spent in the present.
To be sure, the algorithm change and controversies around data protection led to decreased engagement on Facebook in the fourth quarter of 2017, particularly in the U.S. and Canada. But nearly two years later, engagement appears to be growing again.
In the meantime, Facebook has developed and grown several products that provide complementary feeds of content. Facebook Watch grew from 0 to 140 million daily users in less than two years. The company is now testing a dedicated news tab, exclusively featuring high-quality news sources. Those features should further focus time spent on the News Feed, and could boost overall engagement on the platform long-term.
Still the most valuable ad product
Over the last couple years, Facebook has seen its average price per impression growth fall considerably. Average ad prices have actually declined in each of the last four quarters for the company. Wehner attributed the 6% decline in average ad price last quarter to a mix shift in geographies and Stories ads products, which monetize at lower rates than its feed-based ads.
While that decline is the worst Facebook has seen in years, it's also worth noting the drop would've been much worse if not for Facebook's excellent growth in News Feed ads. Impression growth helped offset the decline in average price per impression, producing greater overall growth in the third quarter than in the first half of 2019.
The value of growing engagement on Facebook in the U.S. and Canada is illustrated in the continued growth in average revenue per user (ARPU) in the region. U.S. and Canada ARPU increased 25.1% in the third quarter. For a market that's well penetrated and saturated, that's very impressive.
For reference, competitors like Twitter (TWTR +0.00%) with relatively mature ad businesses in the U.S. have seen considerably slower growth in ARPU. Twitter's U.S. ARPU actually decreased last quarter due to technical issues, but increased about 16.7% in the first quarter and 17.3% in the second quarter. Still, Twitter's ARPU growth is considerably slower than Facebook's.
Facebook's continually growing engagement on News Feed (and its other platforms) have enabled it to keep growing quickly and attract more advertisers to the platform and its other ad products, and give it even stronger footing going forward with a broader base of valuable ad units.
