Q1 2017 Earnings Call Highlights
Mark discussed our good quarter and start to 2017.
Our community continues to grow.
- NEW: More than 1.9 billion people use Facebook every month and nearly 1.3 billion use it every day.
Our next focus will be building community.
- Building global community is bigger than any one organization or company, but we can help by developing the social infrastructure for community -- for supporting us, for keeping us safe, for informing us, for civic engagement, and for inclusion of all.
- 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.
- To help build a safe community, we launched Community Help, a tool that allows people to give and get things like food, shelter or transportation in the wake of a natural disaster.
- NEW: We're going to continue building new tools to keep people safe on our platform. Over the next year, we'll be adding 3,000 people to our community operations team around the world -- on top of the 4,500 we already have today -- to review the millions of reports we get every week, and improve the process for doing that quickly.
- To help build a more informed community, we made changes to our News Feed ranking to make it less rewarding for people to spread hoaxes.
- We're also helping build a more civically-engaged community. In March, we launched Town Hall to help people find and connect with their government representatives on a local, state and federal level in the U.S. In just the first month, we created more than 1 million new connections between people and their representatives.
Mark also gave an update on what we’re building over the 3, 5 and 10-year time horizons.
This quarter we launched a set of new cameras.
- Photos and video are becoming more common than text, so the camera is becoming more central than the text box in all our apps.
- In the Facebook app, you can now swipe right from News Feed to access our new camera with masks, frames and filters.
- We want to give developers the power to build all kinds of AR tools in the camera so more people can experience augmented reality on their phones.
- We also expanded the Stories format to give people new ways to share. Instagram Stories has more than 200 million daily actives. And just a couple months after we launched it, WhatsApp Status has more than 175 million daily active people also using it. More recently, we also rolled out Messenger Day and Facebook Stories, and we're going to keep putting video at the center of all of these services.
Over the next five years, we're going to keep building ecosystems around our apps that a lot of people are already using.
- Last month, we announced that one in every five Facebook videos is a live broadcast -- and over the past year, daily watch time for Facebook Live broadcasts has grown by more than 4 times. This year we also gave people the ability to go Live in 360.
- We just announced that 1.2 billion people use Messenger every month.
- At F8, we launched the second generation of our Messenger platform and introduced a Discover tab to make it easier to find the best experiences quickly.
Finally over the next 10 years, we're developing consumer use cases around technologies that are a big part of our future, but won't be part of the business for a while.
- On the connectivity side, in April, we successfully simultaneously beamed 16 Gbps of data in each direction between a location on the ground and a Cessna aircraft circling more than 7 km away. Eventually, we're going to use this technology along with Aquila, our solar-powered plane that we're building, to beam internet to parts of the world that don't currently have access to it.
- In virtual reality, we launched Facebook Spaces, the first social virtual reality platform that lets you create your own avatar and hang out with your friends.
- We also released the Facebook 360 app for Gear VR that makes it easier to discover and experience 360 photos and videos.
- As people share more video, as we explore more things like augmented reality, and as we build more tools to keep our community safe, we're going to keep investing aggressively in the infrastructure we need to grow and serve our community. That's why we announced that our next two new data centers will be built in Odense, Denmark and Papillion, Nebraska.
Sheryl discussed our focus on our three key priorities for 2017: helping businesses leverage the power of mobile, developing innovative ad products, and making our ads more relevant and effective.
Our first priority is helping businesses leverage the power of mobile.
- NEW: 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,(NEW) 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.
- People are increasingly recognizing that the small screen is big. Our Creative Hub is providing tools that make it easier to create ads optimized for mobile – what we talk about as “thumb-stopping creative.” Marketers can see previews of their ads across Facebook and Instagram before rolling them out and get tips to help drive business results.
Our second priority is developing innovative ad products that help businesses make the most out of their campaigns.
- We continue to improve Dynamic Ads which enable advertisers to promote their full range of products across all devices. Advertisers can now target Dynamic Ads to broad audiences and are seeing great results.
- NEW/CASE STUDY: Last week, I visited home retailer Wayfair in Boston. They used Dynamic Ads to reach a large audience with personalized recommendations from their catalog of over 8 million items. By finding higher revenue customers at a lower cost, the campaign beat Wayfair’s return on ad spend goal by more than 20%.
- NEW: We’re also helping marketers use video to capture shoppers’ attention. People are watching more video on Facebook than ever before and it’s changing how they connect with businesses. In a recent study Facebook commissioned with Kantar, 30% of mobile shoppers said video is the best way to discover new products.
- This quarter, we introduced a new ad format called Collection. Collection helps marketers tell stories on mobile by combining creative videos or photos with a product images.
- NEW/CASE STUDY: For example, Adidas and its agency iProspect created a video highlighting the innovative features of its ZNE Road Trip Hoodie. Using our Collection ad format, Adidas featured 4 more items from their product catalog below the video. They saw a 5.3 times on ad spend and a 1.8 times decrease in cost per conversion. It’s still early for this new format, but it’s a great example of how we can deliver innovative mobile experiences that work for advertisers and people.
- We also launched full-screen, sound-on ads in Instagram Stories. Advertisers can now reach over 200 million daily actives on Stories to do everything from building brands to selling products.
Our third priority is making our ads more relevant and effective.
- Measurement is critical. We recently introduced new and expanded verification partnerships, and committed to audits with the Media Rating Council. Whether marketers are trying to get people to buy something on their website or in their store, we now have systems in place to help them measure results and third-party partnerships to verify those results. These are important steps as we continue to build advertiser trust.
- NEW/CASE STUDY: Bud Light’s NFL campaign is a great example. To promote the designs of their new team-specific cans, Bud Light took a national and regional approach. They ran video ads featuring the new cans to people ages 21-49 in the US. Then they also ran more targeted ads in each region, featuring the 2 cans of the teams playing each other. Using Facebook polling and Oracle data cloud, they saw a 24-point lift in ad recall and a 4.4 times return on ad sales.
- We know marketers want to compare results across platforms and placements. Historically we’ve enabled larger marketers to do this. In Q1, we started testing a set of advanced measurement tools that make it easier for marketers of all sizes to compare the effectiveness of Facebook, Instagram and Audience Network alongside other publishers.
We’re off to a great start in 2017.
- We’re helping marketers leverage the power of mobile, developing innovative ad products, and delivering proven and measurable results.
- We’re excited about the growing adoption of our platforms and we’re going to continue to invest in helping businesses and people connect.
Dave discussed our strong quarter.
We are no longer reporting non-GAAP expenses, income, tax rate or EPS. Given that stock is an important part of our compensation structure, we believe that investors should focus on our financial performance with stock-based compensation included.
NEW: Q1 total revenue was $8.0 billion, up 49%. Ad revenue was $7.9 billion, up 51%.
NEW: In terms of regional advertising growth, Rest of World and Asia Pacific were our strongest growers in percentage terms at 66% and 60% respectively. Both regions benefited from particularly strong advertiser demand. Europe and North America both grew at 47%.
NEW: Mobile ad revenue was $6.7 billion, up 58% and represented approximately 85% of ad revenue. Desktop ad revenue grew 22%, despite a decline in desktop usage, and was aided by our ongoing efforts to limit the impact of ad blocking technologies, which we implemented in Q3 of last year.
NEW: In Q1, the average price per ad increased 14% and the total number of ad impressions served increased 32%, primarily driven by mobile feed ads.
Dave also discussed our outlook for 2017.
- 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.
- We continue to expect that full-year 2017 GAAP expenses will grow 40-50% compared to full-year 2016.
- As we look into 2017 and beyond there are going to be a number of initiatives we believe are valuable to the community and to the company in the long term but are going to be net negative on our operating margins.
- We are embarking on a significant ramp up in infrastructure supporting global growth, and we continue to expect that full-year 2017 capital expenditures will be in the range of $7-$7.5 billion dollars which is up over 50% compared to last year.
Tax. As we noted in the last call, under the new accounting guidance our tax rate will vary based on our stock price. At current stock prices, we expect that our Q2 and full-year 2017 tax rates will both be in the mid-teens, so up from the first quarter rate.