The slow but steady decline in Facebook (NASDAQ:FB) stock since the company announced its latest earnings results on April 22 could have as much to do with pressure on social media stocks in general as it does on Facebook's growth prospects. Facebook's share price has dropped from $84.63 ahead of the announcement to $77.60 as of May 12.
Looking ahead, Facebook management outlined a number of key growth drivers, as well as several ways in which it intends to accomplish its strategic objectives. There are some concerns, too, including the impact of a strong dollar on foreign earnings and ongoing spending levels. Here are a few of the key areas Facebook is focused in the months and years ahead.
Video is off-and-running
Facebook management took a page from digital advertising king Google (NASDAQ:GOOG) (NASDAQ:GOOGL) by refusing to disclose how much a boost its new video ads gave to its $3.54 billion in revenue last quarter. However, like Google execs during their first-quarter earnings call, Facebook did say that video spots were already a hit and playing a big role in adding to its top-line growth.
Facebook COO Sheryl Sandberg said mobile video ads in particular did well, and are a focus to drive future growth. Facebook and Google (thanks to YouTube) are poised to lead the video digital ad space. Based on early results and future expectations, Facebook will give Google all the fight it can handle.
Cheers for the little guy
In February, Facebook announced it had 2 million advertisers onboard; that was no small feat, and it's just the tip of the iceberg. Small and medium-sized businesses, or SMBs, host a whopping 30 million Facebook pages. That equates to about 28 million that aren't currently advertising on Facebook; as Sandberg pointed out, that opens the door to a world of opportunity.
Already, 1 million SMBs have given video ads a try, which speaks to both the intrigue of video for marketers and the appeal of the spots themselves. Though Facebook would love to attract more big-name brands, Sandberg said future growth will largely come from encouraging those 28 million page owners and their brethren to become advertising partners.
Status of the new guys
The introduction of the Oculus Rift virtual reality headset, and the monetization of Instagram and WhatsApp, offer tremendous upsides. Oculus announced its Rift VR solution will hit the shelves in the first quarter of 2016, though pre-orders will be available in the fall, which should give investors a sense of what to expect going forward.
CEO Mark Zuckerberg reiterated that Facebook will look to monetize WhatsApp when it hits 1 billion monthly average users; the messaging app recently announced it was at 800 million, and counting. When asked about integrating WhatsApp with Facebook -- a notion that has been bandied about -- Zuckerberg said, "no, we're not going to do that."
As for Instagram, Zuckerberg deftly sidestepped a time frame for its monetization. However, Instagram should prove to be a revenue pot of gold, so you can bet that won't be the last time Zuckerberg's is asked the question.
Spend money to make money
Once again, Facebook's expenses jumped by over 80% last quarter compared to the prior year. Costs associated with infrastructure, enhancing data centers and analysis capabilities, and a 50% jump in personnel all contributed to higher overhead. According to Facebook CFO Dave Wehner, investors can expect more of the same in 2015.
Though revised downward slightly, Wehner expects spending to rise 55% to 65% this year. That, along with foreign exchange rates, will put pressure on generally accepted accounting principles (including one-time items) earnings in 2015, just as it did last quarter.
Wehner forecast 55% revenue growth this year, to about $19.3 billion, due in part to an increased number of advertisers. Even more critical to revenue growth is its continued efforts to improve what Sandberg referred to as "people-based marketing."
The spending on data centers and improved analytics should pay off by enhancing Facebook's already-impressive ability to target the right ad to the right person at that right time. Improved ad results keep Facebook's marketing partners happy and equate to higher per-spot fees, and the user won't be being inundated with advertisements.
As always, there are challenges, but as Facebook management noted, investors can look forward to many positives this year and beyond.