Facebook’s rip-roaring Q3: 5 insights into the future of the social network

2 Nov 2017

Facebook CEO Mark Zuckerberg. Image: Frederic Legrand – COMEO/Shutterstock

While Facebook is currently running the gauntlet of angry senators, it is actually in quite rude financial health.

It is both the best of times and the worst of times for Facebook. On the one hand, it has never been stronger financially and in terms of the size of its community of users. But on the other hand, its role in the world – technologically, politically and morally – is being heavily scrutinised.

In its latest Q3 results, the company reported a 47pc surge in revenues to $10.3bn, way ahead of the $9.8bn that analysts had been tipping.

‘We’re serious about preventing abuse on our platforms. We’re investing so much in security that it will impact our profitability. Protecting our community is more important than maximising our profits’

The social network is hugely profitable with a net income of $4.7bn, or $1.59 a share, again ahead of the $1.28 analysts had forecasted.

“Our community continues to grow and our business is doing well,” said Mark Zuckerberg, Facebook founder and CEO.

“But none of that matters if our services are used in ways that don’t bring people closer together. We’re serious about preventing abuse on our platforms. We’re investing so much in security that it will impact our profitability. Protecting our community is more important than maximising our profits.”

So, what did we learn about Facebook from its latest results?

1. It now has more than 2bn users

Yep, the Facebook juggernaut is maintaining momentum and gaining velocity. According to the company, there are now about 2.07bn monthly active users. Daily active users amount to 1.37bn, up 16pc on last year. Average revenue generated per daily user is at its highest level at around $7.54.

2. It is a mobile powerhouse

Interestingly, Facebook did not say exactly how many of its users access the service by mobile every day. Either way, mobile advertising revenue represented 88pc of overall advertising revenue for the third quarter, up from 84pc last year.

3. Video is the way to go

The social network continues to hinge its growth efforts on the smartphone and, while virtual reality (VR) and Oculus are part of the narrative going forward, the present is really all about video. In an earnings call, Zuckerberg emphasised that video will remain the top priority for the company’s revenue growth over the next three years. Facebook’s CFO David Wehner said that video has been earmarked as an area for heavy investment in 2018. Facebook added that it would keep investing in its fledgling VR and AR businesses.

4. Facebook is going to need to hire more people

If you think back to about two years ago, Facebook had about 12,000 people and regarded this diminutive size, compared to players such as Apple and Google, as a kind of virtue, enabling it to be nimble and stick close to its start-up roots. However, by the third quarter of 2017, its headcount has grown to 23,165 people, possibly driven by the need to police its social network for fake news and political interference.

In fact, Facebook has emphasised that it is doubling the number of employees dedicated to policing its platform for activities such as child pornography, terrorism or political interference. Whether these will be direct Facebook employees or contractors remains to be seen, but it will no doubt incur considerable costs. In the third quarter of 2017, Facebook incurred capital expenditure of $1.76bn.

During this week’s hearings at Capitol Hill, Facebook’s counsel Colin Stretch said that the social network intends to hire 10,000 more workers to increase safety and review content, effectively doubling the number of reviewers to 20,000.

5. Facebook’s moral compass will be defined by accuracy and data signals

It will require a pretty evident moral compass for Facebook to navigate the doldrums it finds itself in due to alleged gaming of its platform by Russian agents and the internal and external backlash at Zuckerberg’s initial dismissal of the fake news epidemic as “pretty crazy”.

Like any good engineers, Zuckerberg and his team will work their way out of the fog to calmer waters by doubling down on accuracy.

This will start with the removal of duplicate accounts. According to the results, 10pc of Facebook’s 2.07bn monthly users are duplicate accounts. Fake accounts increased from 1pc to 3pc. The increase is partly due to Facebook’s new methodology for identifying these fake or duplicate accounts by using new algorithms or data signals.

The corollary of this is that while the ability to identify real or fake users can be used to combat fraud, electioneering or tampering by bad actors, it can also identify real people to boost the effectiveness of advertisers’ campaigns.

Trust engineers to find a silver lining in stormy clouds.

Facebook CEO Mark Zuckerberg. Image: Frederic Legrand – COMEO/Shutterstock

John Kennedy is a journalist who served as editor of Silicon Republic for 17 years