Facebook Falls Short On Revenue And DAUs Are Flat, But Advertising Is Strong And Stories Are Promising

Even the mighty miss on revenue – but Facebook is still raking it in per user and Stories monetization across platforms is just getting started.

Facebook reported $13.73 billion in revenue for the third quarter on Tuesday, $40 million less than what analysts expected. It’s Facebook’s second earnings miss in a row.

But Facebook now makes $27.61 per user, compared with $21.20 a year ago, so investors appear forgiving – especially because Stories represents such an enticing advertising opportunity.

Approximately 400 million people use Instagram Stories daily, while Facebook (after a slow start) and Messenger Stories have 300 million daily active users (DAUs) combined. WhatsApp Status, the messaging app’s version of the Stories format, has 450 million DAUs.

Story glory

CEO Mark Zuckerberg told investors that Stories and messaging are responsible for "the vast majority of growth in the sharing we’re seeing.” Facebook users share more than 1 billion Stories every day across its family of apps.

“This is the future,” Zuckerberg said. “People want to share in ways that don’t stick around permanently.”

The only problem is that Stories ads don’t make as much money as ads in the news feed, Facebook’s cash cow.

Zuckerberg acknowledged the challenge, but told investors to hang tight. Although it’s going to “take some time” for Facebook’s business to catch up with its community growth, Stories will eventually “be a bigger medium than feed has been,” he said.

In the meantime, Facebook expects users to engage with its news feed as heavily as ever, but usage will likely decrease over time in favor of new formats, particularly Stories. From a business perspective, the news feed will drive most of Facebook’s growth for the next couple of years, Zuckerberg said – "until Stories becomes the bigger driver."

In the near term, the impression growth opportunity for Stories is “significant,” said Facebook CFO David Wehner, who simultaneously threw a little cold water on the good news for ad load.

“Expect more impression growth coming from product surfaces and geos that monetize at a lower rate,” Wehner said, noting that it’s difficult to predict when Stories will reach pricing parity with feed. That’ll take years rather than quarters to shake out, he said.

On the pricing front, the average cost per ad increased by 7% and the number of impressions served across platforms increased 25%, driven primarily by feed ads on Facebook and Instagram.

Facebook’s future

Despite the minor miss, Facebook posted a solid earnings report, with revenue up 33% year over year and mobile making up $12.5 billion of overall revenue.

DAUs totaled 1.49 billion for September, a 9% YoY increase, slightly lower than the 1.51 billion estimate. Monthly active users clocked in at 2.27 billion, a 10% YoY uptick, but just under the 2.29 billion Wall Street expected.

But more than 2.6 billion people use either Instagram, Messenger, WhatsApp or the core Facebook app every month, and more than 2 billion people use at least one of those apps every day.

Good news for Facebook, right?

A 33% revenue boost and a growing active user base in the billions would represent a stellar quarter for any other company.

But Facebook is starting to show signs of stagnation and deceleration. In the United States and Canada, for example, Facebook’s most lucrative markets, DAUs are 185 million, which is flat quarter over quarter and year over year.

The stock markets don’t seem to know what to do with Facebook’s earnings report, but Facebook says it's got lots of runway and investors clearly really want to believe. The company’s stock yo-yoed in after-hours trading by nearly 7% in both directions before eventually recovering with a roughly 5% gain.

 

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