Facebook Earnings: We Who Are About to Click Salute You
(Bloomberg) -- We have a love-hate relationship with Facebook. It is a time waster. It's a virtual town square where we tend to see what conforms to our existing viewpoints. Facebook is creepy, drowns us in ads and changes its rules on a whim.
Yet in spite of Snapchat, Netflix, Pokemon games, family members and a million other ways to spend our time and money, Facebook is becoming even more of a habit for more people. And the company has plenty of tricks left to make more money from our Facebook fix. That combination is the biggest argument in favor of Facebook's ability to endure in an internet industry where it's tough to stay on top. (Just ask Yahoo.)
In the second quarter, the number of people who logged into Facebook at least once a month grew 15 percent to 1.71 billion. More incredibly, 66 percent of those people used Facebook every day, on average. In the last two years, Facebook has padded its daily user number by 300 million -- double Snapchat's reported 150 million daily users.
We might say we hate using Facebook, but the numbers show we are addicted.
It can't last -- can it? Even Facebook is worried about people seeming to share less personal information like vacation photos on Facebook. It's hard to be overly concerned, though, because the company makes a habit of erasing all fears about its durability. A few years ago, the biggest worries about Facebook were its difficulties making money from use on smartphones and concerns that young people were tuning out. Check mobile off the list of concerns. Facebook generated 84 percent of its advertising sales from mobile in the second quarter.
The youth problem is thornier, now illustrated by Snapchat. It's clearly not evident yet in Facebook's financial results, but Snapchat is capitalizing on changes in how people want to interact virtually. If people are permanently shifting from wanting to swap baby photos online to wanting to swap faces, then Facebook has a chronic problem. In a survey published this week by Jefferies analysts, half of Americans ages 18 to 24 cited Facebook as their most frequently used app, but 30 percent said Snapchat was their top mobile habit.
Rivalries for people's time matter because there is a direct correlation between use and revenue. But even if Facebook's audience stopped growing, the company remains the absolute master of making more and more money from our attention. Revenue in the second quarter increased 59 percent from a year earlier. Out of the 300 U.S.-listed companies with at least $10 billion in annual sales, none are growing as fast as Facebook.
It's almost impossible to believe, but a company with more users than the population of China grew by 15 percent and turned in the fastest rate of revenue growth in two years. How often does the seventh-biggest company by stock market value reignite its sales growth rate once it starts to wane? Facebook did it.
It does get harder from here. The rest of 2016 will be an important test for Facebook's ability to keep growing at an unbelievable rate. In the latter months of 2015, Facebook cranked up the number of ads in users’ feeds, and the company has said that sets up a tough challenge to keep revenue growing at the same clip later this year.
Facebook's enterprise value also clocks in at a hefty 21 times expected 2016 earnings before interest, taxes, depreciation and amortization. Google's parent company is valued at 13 times Ebitda, according to Bloomberg data. There should be a premium for Facebook's faster sales growth, but perhaps not that much.
Comfort yourself by considering that Facebook is still getting off the ground with ads on Instagram, where ad prices and the number of ad spots have room to run compared with those on the main social network. Facebook is barely making any revenue at all from two of its most popular products, the chat apps Messenger and WhatsApp, which both have more than a billion users each month. RBC estimates WhatsApp and Messenger could generate more than $10 billion in sales in 2020, or more than 10 percent of Facebook's estimated revenue for that year.
That potential and the third straight quarter of eye-popping financial results is drowning out the worries about the latest threats to Facebook's dominance. Right now, it looks as if the Facebook steamroller is impossible to stop.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
Granted, most of these Facebook newcomers are in developing markets where Facebook has a hard time minting their attention into advertising dollars. For now.
I'm excluding a handful of fast-growing companies such as XPO Logistics and Dollar Tree whose sales were inflated by big acquisitions.
Facebook's valuation is clouded a bit by its aggressive use of non-GAAP financial results
To contact the author of this story: Shira Ovide in New York at sovide@bloomberg.net.
To contact the editor responsible for this story: Daniel Niemi at dniemi1@bloomberg.net.