Facebook results deliver more bad news for newspapers

Ad revenue of companies like Facebook have been on an upswing year after year

Facebook offers a formidable combination of scale, strong technology, and a diversity of platform. Photo: Bloomberg
Facebook offers a formidable combination of scale, strong technology, and a diversity of platform. Photo: Bloomberg

New Delhi: Sure, Facebook increasing its quarterly profit to over $2 billion in the three months ended 30 June, a mere six months after it hit $1 billion is significant, but there’s something even more important in the numbers presented by the company’s founder-chief executive officer Mark Zuckerberg on Wednesday. And that’s an inflection point that highlights even more troubled days for print media companies.

First, Facebook. Total revenue grew by 59% year-on-year to $6.4 billion, and advertising revenue, 63% to $6.2 billion. Of this, mobile advertising revenue reached $5.2 billion, up 81% year-over-year, and was approximately 84% of total ad revenue.

The numbers tell a story of a company that has grown rapidly on the back of the growth of mobile and video.

Now, print media. Going by its numbers, Facebook will probably make more in advertising this year than all the US newspapers put together.

According to the US Census Bureau, newspaper publishers saw total revenue fall 3.8% from $28.1 billion in 2014 to $27 billion in 2015. The number, which includes circulation revenue, is down 44% from total revenues of $48.3 billion in 2007.

Which means, Facebook will probably make more from advertising this year than US newspapers.

Indeed, it is Internet powerhouses such as Google and Facebook that are able to leverage sophisticated targeting and demographic strategies to target the right user and thus offer advertisers more bang for the buck. This explains why even as newspaper revenues have plummeted, the ad revenue of companies like Facebook have been on an upswing year after year.

It isn’t just print that is being hit by the relentless march of these two giants. According to an analysis by Digital Content Next, a trade association of digital media companies, based on the first quarter earnings of Google and Facebook, the two companies accounted for $2.4 billion of the incremental $2.7 billion that flowed into digital advertising in the that quarter (as compared to the corresponding period a year ago). But the travails of other digital media are unlikely to comfort executives at traditional media companies (many of which also have their own digital presence). Also, unlike the former, the latter do not usually have access to venture capital.

But back to Facebook.

Zuckerberg announced during the earnings presentation that the company now has 1.71 billion monthly active users, an increase of 15% year-over-year.

Facebook is dominant in mobile and also video.

Zuckerberg said in the earnings call: “We’re particularly pleased with our progress in video as we move towards a world where video is at the heart of all our services.”

According to the company, Facebook users watch an average of 100 million hours of video on mobile every day. Daily views have increased from 1 billion to 8 billion in a year’s time. Text posts, meanwhile, are declining year-on-year. Given the numbers, video seems to be the hottest ticket for customer engagement. The company also offers Facebook Live—a feature that enables users to interact with their friends and users in real time through live videos, and has started piloting offline videos in India allowing users to save videos to watch offline, along the lines of a similar program from Alphabet Inc.’s YouTube, as the companies attempt to crack a market beset with poor Internet connectivity.

The second quarter numbers show that the US and Canada, and countries in the Asia Pacific region are the fastest growing for Facebook with advertising growth rates of 69% and 67%, respectively. Facebook’s chief financial officer, David Wehner, pointed to Asia-Pacific, especially India, as one of the most promising areas for continued user growth. The region “has been a consistently good performer for us over the last several quarters and we will continue to invest our global sales resources to drive opportunities there,” Wehner said.

India makes perfect sense because it is the only major market in the world where the number of Internet users is growing rapidly. According to venture capitalist Mary Meeker’s Internet Trends report, the number of Internet users in India grew 40% in 2015 to 277 million. It is the only country where the growth rate of Internet users in 2015 was higher than that in the previous year (33%). It is also the second largest country in the world in terms of Internet users, ahead of the US and behind China. Latest numbers show that India has 68 million people who access the Internet on their mobile phones every day. Both Facebook and its rival Google have rolled out products and programs aimed at capturing new users in India as growth flattens in developed countries.

The momentum of Facebook’s profit engine doesn’t surprise Sanchit Vir Gogia, chief analyst and CEO of Greyhound Research. “Facebook has already built a strong community and is increasing the stickiness of the Facebook app by offering native content. It will now look to focus on commerce, that will be very critical for the company in the long term,” he said.

Gogia is specifically referring to Facebook’s “hidden gems” that he and other experts believe are the company’s next generation of growth engines—photo sharing app Instagram that has 500 million monthly users, and messaging apps Facebook Messenger and WhatsApp, both with over a billion users. This fits in with the company’s report that in the second quarter, time spent per person increased by double digit percentages year-over-year across Facebook, Instagram, and Facebook Messenger.

Facebook offers a formidable combination of scale, strong technology, and a diversity of platform. “It has stolen the thunder from companies such as Google and Twitter,” says Gogia confidently. Alphabet Inc. will present its earnings on Thursday late night India time.