As Facebook user and revenue growth slows in Q2, advertisers are still on board – Info Marketing

It’s been a bruising year for Facebook public relations. Now, its second quarter earnings report of 2018, released on Wednesday, showed slowing user and revenue growth and lower-than-expected revenue and earnings. Wall Street wasn’t pleased and was somehow surprised by the numbers despite the company’s guidance. As often happens, Wall Street and advertisers are operating on different trajectories. As we’ve repeatedly seen over the past months, advertisers continue to spend more on Facebook and Instagram ads and have been relatively unphased by slower growth trends or data scandals.

Here are takeaways for marketers from Facebook’s Q2 2018 earnings report.

Why investors weren’t happy

Despite Facebook executives having warned growth was likely to slow, analysts had high expectations. Overall revenue and earnings per share missed analyst estimates, and Facebook said growth will continue to slow through this year. Facebook stock fell sharply in after-hours trading.

• Total revenue was $13.23 billion in Q2, off from the $13.36 billion analyst consensus, and earnings per share of $1.74 missed the projected $1.72.
• Facebook advertising revenue rose 42 percent year over year from $9.16 billion to $13 billion. (In 2017, Q2 revenue rose by 47 percent year over year.)
• Daily active users were flat in North America and fell in Europe.
• Facebook said investors should expect total revenue growth rates to “decline by high single digit percentages” quarter over quarter in both Q3 and Q4 of this year.

A bet on Stories ads

Facebook plans to invest in growing and promoting Stories, where ads are nascent on Instagram and now Facebook. Advertisers are slower to adopt new advertising media, COO Sheryl Sandberg noted.

“We have 400 million people sharing with Instagram Stories, 450 million with WhatsApp status; Facebook is newer, but we’re seeing good progress there. The question is, will this monetize at the same rate as News Feed? And we honestly don’t know; we’ll have to see what happens. There are good reasons to be very optimistic about the monetization,” said Sandberg, responding to a question on the earnings call.

CEO Mark Zuckerberg noted new features in Stories like polls, questions and collaborative stories in groups and events.

Privacy efforts & GDPR have an effect

New data privacy options, rolled out for the EU’s General Data Protection Regulation (GDPR) and in the wake of the Cambridge Analytica data scandal, may also impact growth, executives said. Zuckerberg reiterated the company’s investments in privacy: “… [W]e’re investing so much in security that it will significantly impact our profitability.” The company attributed one-third of the 3 million drop in daily active users (DAUs) in Europe to GDPR, where users had to go through a process to give consent to Facebook to use their data. That was in line with the company’s expectations and guidance.

Yet “… [E]ven at decreasing growth rates, we are still growing and predicting growth at very healthy rates, and that’s based on returning for advertisers,” said Sandberg.

What Facebook didn’t mention

Factors that weren’t highlighted as causes for growth deceleration were the changes Facebook made to News Feed early in the year to prioritize posts from friends; the loss of third-party data and other targeting mechanisms for advertisers after Cambridge Analytica; and the growth of ads on Instagram, where ads are less expensive than Facebook.

Advertisers continue to invest more

Among digital agency Merkle’s client base, ad spend growth on Instagram was four times higher than that of Facebook year over year in Q2 2018. Advertisers spent 40 percent more on Facebook and 177 percent more on Instagram than in the prior year. Instagram ad impressions rose by 209 percent and CPMs fell by 10 percent, while on Facebook, impressions fell by 17 percent and CPMs shot up 70 percent year over year.

Facebook sees continued potential for Instagram. Instagram has more than 1 billion active users and 2 million advertisers, compared to Facebook’s more than 6 million.

CFO David Wehner did mention changes in the way advertisers are using their own data had minimal impact on growth, but the loss of third-party data was not brought up.

New ‘family-wide audience metric’

Facebook introduced a new “family-wide audience metric” across Facebook, WhatsApp, Instagram and Messenger. The company says 2.5 billion people use one or more of the services each month.

“This number better reflects our community for a couple of reasons,” said Zuckerberg. “First, it refers to individual people rather than active accounts, so it excludes when people have multiple active accounts on a single app. And second, it reflects that many people use more than one of our services.”

Google is already using AI to automatically syndicate advertiser campaigns across its services including Search, Gmail, YouTube and its Display Network. It’s conceivable that Facebook could move further in this direction as well.

More stats

• More than 200 million people are members of Facebook Groups. Facebook’s five-year goal is to have 1 billion people in Groups.
• Facebook now has over 30,000 employees, an increase of 47 percent from the prior year.
• Mobile ad revenue was $11.9 billion, up 50 percent — approximately 91 percent of ad revenue.
• Average price per ad increased 17 percent.
• Ad impressions served across services increased 21 percent.

Zuckerberg noted continued investments in VR — the Oculus Go “is off to a good start” priced at $199 — and a focus on building out the business ecosystem around messaging on WhatsApp and Messenger over the next five years.

[This article originally appeared on MarTech Today.]

About The Author

Ginny Marvin is Third Door Media’s Associate Editor, assisting with the day to day editorial operations across all publications and overseeing paid media coverage. Ginny Marvin writes about paid online marketing topics including paid search, paid social, display and retargeting for Search Engine Land and Marketing Land. With more than 15 years of marketing experience, Ginny has held both in-house and agency management positions. She can be found on Twitter as @ginnymarvin.