Facebook, at least to moderate net growth rise for the full year 2021 and Apple is not the only “one” to blame

Facebook declared 28.276Bn advertising revenues and 734 million revenues not coming from advertising, totalling 29.010Bn for the 3Q 2021. There has been a 33% increase in ad revenues and a 195% rise in not adverising revenues for the term over the level declared in the same quarter 2020.

The landscape is different if one examines carefully the graphics provided for Facebook during the presentation for the press and financial experts.
Here one can see that Facebook experienced a flat increase in revenues between 2Q and 3Q 2021, with a slight Q o Q decrease in ad revenues from the $28.580Bn declared in 2Q to the $28.276 Bn registered in 4Q this year.

Facebook Q3 2021_revenues and expenses
All the charts © Facebook. Composition © Eastwind.

Costs and expenses went up a 38% over last year’s 3Q to 18.587Bn leaving the income from operations at $10.423Bn, a 30% higher than the reached in the same Q 2020. Despite income from operations went up, Facebook has experienced a 0.1% reduction of the operating margin to the 36%.
Here above the data provided in the press release. But the point of view differs if one examin the graphics provided later during the presentation of the results to the press and financial experts that include the comparison with 2nd Q 2021 data.

Taking into account the graphics, income from operations decreased in 3Q 2021 to the $10.423Bn with a cut in operationg marging of a 7% quarter on quarter going down to the 36% in 3Q from the 43% reached in 2Q 2021. The company would need adding to the net income obtained in 3Q 2021 aroud 2.025Bn QonQ more to match in 4Q 2021 the level of net income reached in 4Q 2020.

The company would need pushing up net income at 2.025Bn QonQ to match in 4Q 2021 the level of net income reached in 4Q 2020.

Costs derived from the number of employees increased as Facebook reports a headcount at 68,177 people as of September 30, 2021, with increase of 20% year-over-year. The company has already announced hiring of talent to develop the open Metaverse so costs in the mentioned chapter are set to rise.
All costs increased in 3Q 2021 against the 2Q an average of 0.1% with General and Administrative costs up a 3%. R&D and Costs of revenue made two thirds of total costs with a 22% and a 21% of the total respectively.

Facebook Q3 2021_operations income and operating margin
All the charts © Facebook. Composition © Eastwind.

For the whole fiscal year 2021 Dave Wehner advanced total expenses to be in the range of $70-71Bn, updated from prior outlook of $70-73Bn despite the rise in the headcount. Full-year 2022 total expenses are expected to be far higher reaching the $91-97Bn, driven by investments in technical and product talent and infrastructure-related costs.
The CFO of Facebook explained that the tech giant expected fourth quarter 2021 total revenue to be in a range of $31.5Bn to $34Bn. In addition, he said, we expect non-ads revenue to be down year-over-year in the 4Q this year as Facebook lap the strong launch of Quest 2 during last year’s holiday shopping season.

Facebook declared diluted earnings per share at $3.22, with a 19% increase against 3Q 2020, but a 0.39 decrease from the declared in 2Q 2021..
The launch of Apple 14 (mainly affecting Commerce ad revenues), the increase of Tic Toc in DAUS and MAUS among young adults and burst into the ad landscape, headwinds for eCommerce growth, Covid-19 new outbreaks in SE Asia and projected investments in Reality Labs are negatively affecting right now and will do in 4thQ the benefits growth of Facebook.

Zuckerberg’s company did better in 3Q than in the same period last year but margin and net income experienced a drastic reduction compared with 2Q 2021.

With the investments and the rise in the headcount announced for the Metaverse, headwinds pointed for ad revenues and the announced reduction of not ad revenues for the 4Q Facebook has a hard task ahead to match in 4Q 2021 the income levels reached in 4Q 2020.

Surge of Tic Toc, Apple14 and eCommerce’s more moderated rise, challenging Facebook’s growth

Mark Zuckerberg ( Founder and CEO, Facebook) announced this evening the growth strategy of the tech giant was focussed in three areas: Creators -Reels and other shifts to cater young adults-, Commerce and Metaverse (building the the next computing platform for it).
Surge of Tic Toc and young people’s prefference for messaging apps are making for Facebook harder than ever attrackting and retaining young adult users (18 to 29 years old).

Despite this fact, Facebook declared huge increases in DAUS (daily active users), MAUS (monthly active users) and family users during 3Q 2021 (see the table below).

Facebook Q3 2021_DAUS_MAUS_ARPU_Revenue usergeography
All the charts © Facebook. Composition © Eastwind.

It is still to see how will affect Facebook good will and users count the leak of the internal papers made by former employees of the tech giant and the latest tech problems that caused problems for users to access the social network.

Besides Tic Toc competition Apple’s changes make e-commerce and customer acquisition less effective on the web, this is a challenge but also provides the tech giant in Zuckerberg’s view an opportunity for developping solutions that allow businesses to set up shop right inside Facebook apps.
Despite the opportunity it brings, performance and measurement headwinds related to Apple’s ATT changes impacted negatively ad Spend during the 3Q 2021, pointed Dave Wehner (CFO at Facebook), and advertising is still today the main source of revenues for the company.

In Q3, the total number of ad impressions served across Facebook services increased 9% and the average price per ad went up a 22%, even with Apple’s headwind.
Impression growth was driven primarily by developing markets, especially in Asia-Pacific. Pricing growth benefited from advertiser demand and lapping of Covid-related pricing weakness during the third quarter of last year.

Facebook CFO, Dave Whener quotes as well some other macro economic risks challenging the growth of the company, such as new outbreaks of the COVID-19 pandemics in South East Asia, supply chain disruptions , etc…

Facebook to report separately revenue and operating profit for FRL, an strategical must?

The tech giant announced today that will segregate Facebook Reality Labs FRL) as an independent reporting segment from the rest of the company . From 4rthQ 2021
The first segment, Family of Apps, will include Facebook, Instagram, Messenger, WhatsApp and other services, while the second segment, Facebook Reality Labs (FRL), will include augmented and virtual reality related hardware, software and content.

Building the foundational platforms for the metaverse will be a long road that will require huge amounts of investment, not only in 2021 but in the coming years. This investments will reduce Facebook’s operating profit in $10 Bn for 2021 and also in the years to come, Zuckerberg explained.

The tech giant points that it is committed to bringing this long-term vision to life and that expects to increase the investment in FRL for the next several years.

The company is at the beginning of restructuring to cater young adults needs and developping of new products in both reporting areas (Apps and FRL) but the shift on course “will take years, not months, to fully execute, and I think it’s the right approach to building our community and company for the long term” underscored Facebook’s CEO.

The strategical importance of building the next computing platform for the Metaverse is the reason why the company says it has decided to establish separate reporting for the Apps business and the Metaverse AR and Contents related business.

The TV room, one of the Oculus Rooms launched in 2017. © Facebook

Facebook fight for diversifying its sources of revenues dates back some years ago but the company has not yet managed to achieve this objective. Now the tech giant says it will take them years of development to get the outcomes.

In the middle of a huge increase in digital ad spending by companies all over the world but a market increasingly crowded in the offer side by new incommers like Tic Toc, the strategy of diversifying sources of revenue seems a correcto choice.
Further The path to diversification has been successfully walked forth by former Google, now Alphabet.
The natural field for Facebook diversification seems also logical: focus on FRL and products for young adults.

But the fact is that intensive investment by Facebook in the FRL area might not be rewarded by an increase in revenues as soon as needed not to ballast at least temporarily the company’s income.
As well as the social networks advertising segment is becoming crowded by the side of the offer, it is true that the Metaverse ad and e-commerce segment within it is quickly being explored and monetized by other tech companies such as gaming cos, blockchain cos and even telecoms. And gaming companies, as well as Tic Toc, bring with them the connection with the new young adults as a core advantage deep rooted in their DNA.

Lets see if Facebook decides to grow its Metaverse business not only with inhouse R&D but also baking purchases or alliances with any fast growing gaming and blockchain startups as the giant did before in the Apps arena with the acquisition of Instagram or WhatsApp. If doing so surely FTC would keep an eye on these movements.

Anyway, the call to build an open Metaverse aired some weeks ago by Facebook might provide for inputs from individual developers or the collaboration with other companies already operationg in the segment leading to faster advances and accelerationg the R&D pace expected by the tech giant.

Image over the headline.- Mark Zuckerberg (Founder and CEO of Facebook).© Facebook

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Facebook appoints Nicola Mendelsohn as Head of the Global Business Group. Search for VP EMEA now open

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