Facebook Inc. (NASDAQ: FB) reported its second quarter 2019 earnings results on Wednesday, July 24. The company’s top and bottom line numbers topped expectations. Let’s take a look at how the quarter panned out in general.
FTC Settlement
CEO Mark Zuckerberg started the conference call by
addressing the most pertinent issue – the settlement with the Federal Trade
Commission (FTC). Facebook will have to pay a $5 billion fine and make
significant changes to bring more accountability and transparency into its
management of user data.
These changes include the creation of a new privacy committee that will have oversight of Facebook’s privacy policies, and the careful monitoring of developers that access data on its platform. The company will be subject to quarterly reviews regarding the implementation and progress on these matters.
Regulations
Zuckerberg welcomed tight regulations by the government on
the technology industry and said the company is seeing progress in its ongoing
efforts to reduce toxic content, election-meddling and propaganda on its
platform.
At the end of June, Facebook rolled out ad transparency
tools that show the payer and viewer of an ad as well as the amount paid for the
ad. The company believes this will help people understand who is trying to
influence them and thereby prevent interference and misuse in elections and
other social issues.
Opportunities
Facebook sees vast opportunity in the commerce and payments
space. The company is working to develop and expand its tools – Instagram Shopping,
Facebook Marketplace and WhatsApp Business – to make it easier for buyers and sellers
to do business. WhatsApp Payments is considered to be the most important in the
long term.
Facebook also sees huge opportunity in its cryptocurrency Libra and plans to work with regulators to iron out the existing issues. Another area of importance is augmented and virtual reality. During the quarter, the company rolled out its first all-in-one wireless headset, Oculus Quest, which has been well received. The tech giant promises more innovation in this area in the coming years.
Also see: Facebook Q2 2019 Earnings Conference Call Transcript
Advertising
Based on its daily active user metrics, Facebook sees
stability in the developed markets and growth in the developing markets. The
company sees healthy engagement levels on its core Facebook app.
In advertising, Facebook launched Automated Ads that provide advertisers with customized marketing plans to make their campaigns more effective. The company also rolled out Ads in Explore on Instagram as a majority of users use Explore to search for content based on their interests.
North America and Asia-Pacific saw the highest growth in regional ad revenue with both gaining 30%, followed by Europe at 25%. The company, however, admitted that Europe has been seeing slower ad revenue growth since the GDPR implementation compared to North America and Asia-Pacific.
Outlook
Facebook expects to see a slowdown in its constant currency
revenue growth rates sequentially going forward, with a more pronounced
deceleration in the fourth quarter and into 2020, partially due to ad-targeting
related headwinds and uncertainties. Ad-targeting headwinds include regulatory
ones such as the impact from GDPR as well as platform and product changes as
privacy gains more importance.
Facebook expects its expenses for 2019 to increase 53-61% compared to 2018. The $5 billion related to the FTC settlement represents around 16% of this expense growth.