Facebook (NASDAQ: FB)is now a conglomerate of social media platforms, with each platform executing well. In this segment fromIndustry Focus: Tech, Motley Fool analyst Dylan Lewis and senior tech specialist Evan Niu, CFA,discuss Facebook's first-quarter results.
A full transcript follows the video.
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This video was recorded on May 5, 2017.
Dylan Lewis: Facebook's top line came in at $8 billion, up 49% year over year. EPS came in at $1.04 versus expectations of $0.87 a share, so a handy beat right there. Of that total top line, advertising revenue was $7.9 billion, 85% of which came from mobile. This is and always has been an ad-driven business. I think if you want to highlight just how well Facebook has transitioned to mobile, think about that number and then think about the fact that in Q1, average price per ad was up 14%, and the total number of impressions was up 32%. Last week, we talked about the ad dynamics with Twitter, and they were both not going in that direction. The idea of average price per ad going up would be something that Twitter would love right now.
Evan Niu: Yeah, they're crushing it on the mobile side. If you look on a trailing-12-month basis in dollar terms, mobile ads are now at $25 [billion] to $26 billion for Facebook. That is just incredibly impressive, considering the fact that five years ago, they had basically nothing. They've really worked hard to grow that business. They always disclose percentage, but I like to crunch the numbers and look at them in dollar terms: $25 [billion] to $26 billion. It's funny, because that's what Apple'sservices business is now, and that's a side thing for Apple, but it's Facebook's core business right now. But it's growing so fast. It continues to really drive higher, like you mentioned, ad prices are going up. I think demand for Facebook ads is outstripping supply, particularly for what they're trying to do with the ad load, and improve the user experience. Ad prices are going up, and they're putting up really strong numbers, it's really hard to not love what they're doing.
Lewis: That's really backed up by all of the ad industry research that I read about digital ad spend. It's Google and Facebook that continue to eat up market share, and it comes at the expense of a lot of the smaller platforms. They just seem to get stronger and stronger. And some of that is definitely fueled by what's going on on the user side for them. Monthly actives now total 1.9 billion on Facebook, which is good for 17% year-over-year growth, and roughly 1.3 billion, or about two-thirds of those, are coming to the platform every day. It's baffling that they can put up that type of double-digit percentage growth on a denominator that is already in the billions.
Niu: Yeah, it's incredible how much their user growth keeps [going] ... I think, on a sequential basis, monthly actives were up 78 million. That's a third the size of Twitter, and they just added that in a single quarter. I think the ratio of dailies to monthlies has pretty much always held constant right around that two-thirds level you mentioned. So, yeah, no big changes in terms of the engagement front there, which is interesting because, like we talked about last week, Twitter's engagement is going up, if you look at, directionally, dailies versus monthlies, whereas Facebook is holding flat. That's not necessarily a bad thing, because Facebook is a much bigger platform. I think there's a different use case for it. And, obviously, they're putting up much better financial numbers than Twitter. They have so many platforms now, too, that each platform individually continues to crush it, and Facebook has four or five of them. I think investors would be happy about any one of these platforms doing well, but they're killing it on literally all fronts.
Lewis: Yeah, it's funny to think about a platform that put up double-digit year-over-year growth, and have that be the mature platform in their portfolio. But, you look over at Instagram -- Instagram has 700 million monthly actives as of this quarter. A year ago, that number was 400 million monthly actives. That is insane growth that it's posting. You look at the Instagram Stories feature, which is kind of a Snapchat mimic type thing they rolled out recently, that already has over 200 million daily active users. It already has the daily active user base of Snapchat, despite being an add-on feature to a platform that already has 700 million monthly actives, which is just baffling.
Niu: Right. They also have the WhatsApp Status, which is basically the same thing, it's ephemeral photos, videos, gif images that disappear. On WhatsApp Status, they have 175 million daily actives there, too, which is also bigger than Snapchat. Again, they have all these platforms that are just growing. That 2 billion monthly active number they're approaching on the core platform is only for the core platform. I think I would like to see Facebook starting to report more detail on these other platforms because they're becoming so big and important. They give these infrequent updates through blog posts and stuff like that. But as far as a quarterly basis, I think that would be very useful for investors, to start breaking it out. I know they acknowledge that they haven't yet because they're still selling Instagram ads through the same core interface as Facebook. But, I think, from an investing perspective, that would be really useful, to better gauge the progress of each of these platforms, particularly the smaller ones. Even if they haven't turned on the monetization bit yet, I think having operating metrics would be really helpful.
Dylan Lewis owns shares of Apple and Facebook. Evan Niu, CFA owns shares of Apple and Facebook. Evan Niu, CFA has the following options: long January 2018 $120 calls on Facebook. The Motley Fool owns shares of and recommends Apple, Facebook, and Twitter. The Motley Fool has a disclosure policy.