Facebook’s (FB) Q2 report: Here are three areas to keep an eye on going forward

Shares of Facebook Inc. (NASDAQ: FB) were down 4% on Thursday despite the company reporting better-than-expected earnings results for the second quarter of 2021 a day ago. While revenue and earnings surpassed projections nicely, with profits doubling year-over-year, the company’s outlook for a deceleration in revenue growth in the second half of the year led to a drop in the stock. Here are three points worth noting from the earnings report:

Metaverse

Facebook created quite a buzz when it mentioned the idea of a ‘metaverse’ on its quarterly conference call. The company describes the metaverse as a “virtual environment where you can be present with people in digital spaces.” In other words, it is a virtual world where people can hang out, play games with friends or work.

The metaverse, which will be accessible through apps on phones and PCs as well as virtual and augmented reality devices, is expected to replace the mobile internet over time and create new experiences and economic opportunities.

Facebook said the metaverse would require significant investment over several years in terms of new protocols, devices, and software, among others. The company also anticipates transitioning from a social media company to a metaverse company in the coming years.

Although the social media giant did not give a specific number with regards to the required investment in the metaverse, one of the analysts on the call made a rough estimate of it being around $5 billion a year, which the company did not reject completely. The metaverse is a mega project that is worth watching over the coming years.

Ecommerce

The digital transformation of businesses brought on by the pandemic last year continues to benefit Facebook as the company’s tools help several enterprises build their operations online. Entrepreneurs and creators can advertise their businesses through Pages, Profiles and Shops on Facebook and Instagram and they can interact with customers through Groups, WhatsApp or Messenger.

Facebook is also making progress on payment systems. WhatsApp is now available to everyone in Brazil and India and the company is adding new payments features like QR codes in Messenger in the US. It is also making Facebook Pay available outside its apps, which means it will appear as a checkout option on the web. Ecommerce is becoming a significant part of Facebook and one that will present new opportunities going forward.

Advertising

Advertising revenue grew 56% year-over-year to $28.6 billion in Q2, driven by strength in verticals like online commerce and consumer packaged goods. Ad revenue growth gained traction across all regions during Q2, facing an easy comparison with the year-ago quarter which was impacted the most by the pandemic. The strongest growth of 86% came from Rest of World followed by Europe at 63%. Asia-Pacific and US & Canada grew 56% and 48% respectively.

Total number of ad impressions rose 6% and the average price per ad increased 47%. For the rest of the year, Facebook expects advertising revenue growth to be driven by advertising price increases. The company expects more ad targeting headwinds this year due to regulatory and platform changes, such as the iOS updates, which is anticipated to have more of an impact in the third quarter than the second quarter.

Click here to read the full transcript of Facebook’s Q2 2021 earnings conference call