Facebook escapes tech rout as it takes over the world2 min read . Updated: 28 Apr 2016, 03:52 PM IST
For the time being, Facebook has taken Apple's place at the top of the tech heap
New York: Remember that kid in high school with flawless skin, straight-A grades and a gorgeous jump shot? The one who did everything perfectly, and you envied/hated her for it? Facebook is that kid.
While the rest of the tech superpowers have been flop-sweating recently through their quarterly earnings reports, Facebook just breezed by, struck a glamorous pose for its promposal Instagram photos and collected its garlands.
The company in the first quarter posted its fastest rate of revenue growth since 2014 at 51.9%, even though Facebook has nearly double the sales it had two years ago. Facebook’s user base is already bigger than the population of China, and yet more people are becoming citizens of Planet Facebook—and using it more and more. On average, two-thirds of Facebook’s users are on the service every day, the best rate ever.
After seeing Facebook stumble its way through its 2012 initial public offering, it would have been hard to imagine four years later that Facebook would be the best managed of the large tech companies. But that’s exactly what it has become. Facebook is a perpetual motion machine, but for money.
Mark Zuckerberg in January described his repeatable blueprint for turning his social networks into businesses with $20 billion in annual sales. First the company makes a cool digital hangout that people seem to like. Then it invites businesses into this hangout, too. “And then only once you have that ramped up to a good scale can you really start dialing up advertising" or other money-making strategies, Zuckerberg told analysts at the time.
His company has pulled off this play so far with its main social network, and the same formula seems to be working with Instagram, which opened to all advertisers a few months ago. Facebook’s Messenger chat service has just arrived at the people-plus-business mixer stage. WhatsApp and its 1 billion users are next in line. Ads or some other way to make money from connecting businesses and people are sure to be next.
It’s too soon to tell whether the Zuckerberg playbook will work for Messenger, WhatsApp, or its nascent live video offering. But given the company’s success so far it should get the benefit of the doubt.
There are spots of bother, of course. Facebook’s operating margin in the first quarter was 37%—very healthy, but not as plump as the 44% margin in the fourth quarter as the company dialed up expenses a bit. Facebook for inexplicable reasons is seeking to rejigger its stock structure to give Zuckerberg even more power over a company he already firmly controlled. And intractable troubles at Apple show companies in technology can’t be amazing forever.
For the time being, however, Facebook has taken Apple’s place at the top of the tech heap. As Apple once did, Facebook has both torrid sales growth and impressive profits. Unlike Apple, Facebook has a lineup of money-making opportunities to keep its perpetual motion machine going. Bloomberg
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.