Facebook files strong Fourth Quarter and Full Year 2016 Results riding on mobile and advertising growth

Facebook has released a report announcing the performance of the company in the fourth quarter of 2016, as well as the entire year.


Facebook has released a report announcing the performance of the company in the fourth quarter of 2016, as well as the entire year. Mark Zuckerberg, Facebook founder and CEO said, "Our mission to connect the world is more important now than ever. Our business did well in 2016, but we have a lot of work ahead to help bring people together."

Revenue has been increasing steadily over the years, but in the fourth quarter of 2016, Facebook did particularly well. Advertising based revenue saw a growth of 53 percent, and mobile revenue was 84 percent of the total revenue, up from 80 percent of the total revenue in 2015. Advertisers increased their focus on mobile based advertisements, particularly when it came to mobile video. A common strategy to optimise mobile videos, and increase engagement was to grab attention and hook in the viewers in the first few seconds, and add text so users can consume the video without having to listen to the sound. A general trend so far has been a dip in revenues in the first quarter, following strong growth in the fourth quarter of every year.

 Facebook files strong Fourth Quarter and Full Year 2016 Results riding on mobile and advertising growth

The revenue was more or less distributed across all regions. There are three priorities for Facebook. These are capitalising on the shift to mobile phones, attracting more advertisers to the platform, and making the advertisements more effective and relevant to the users. Businesses of all sizes use Facebook for marketing themselves. One of the ways Facebook makes ads more relevant to their users, is through Dynamic Ads. Dynamic Ads for travel pushes ads to users based on where they are travelling to and the dates on which the travelling takes place. Retail ads are pushed to consumers when they are in the vicinity of the product.

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Facebook is concenterating on video as much as mobile. There have been some major improvements and introduction of new features when it came to video over the course of 2016. Facebook rolled out a feature that allowed users to view Facebook videos on their television screens. Facebook Messenger got a group video chat feature. Quite a few measures were taken to improve just Live videos. Facebook Live got a pre-stream lobby, as well as the ability to schedule feeds. The Live Video API got a new continuous stream ability. National Geographic partnered with Facebook for the first Live 360 video.

Going forward, Facebook has some exciting plans for videos. Style transfer capabilities, similar to the Prisma app are expected to arrive on Facebook live. At a panel discussion, Facebook demonstrated its capabilities of low latency real time style transfer. Snapchat style augmented reality overlays are also in the works, and are expected to be introduced soon for Facebook Live videos. A tab with the most engaging videos are shown at the bottom of the Facebook app in the US, and the tab is in the process of being rolled out to all markets.

While Facebook has succeeded with short videos so far, it wants to also capitalise on longer form videos, with high production values. To this end, it has tweaked the News Feed algorithms to reward longer videos with higher completion rates. The highly engaging video content gets pushed to users on priority. Facebook will continue to push video content across all other types of content across their entire family of applications, and will introduce various features to make it easier to record and share videos. Facebook has indicated that an audio only live feature is in the works for people with spotty connections.

The video ads had some issue with the metrics, where advertisers were lead to believe that people watched their videos for much longer than they actually did. By not counting all the users who stopped watching the ads in less than two seconds, Facebook was consistently reporting inflated averages on how much time people spent watching videos. This problem was fixed. Advertising made up the major share of the revenues. The Americas, and Europe generated the most revenues, whereas the Asia-Pacific region generated less revenues than the world average.

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Payments and Other fees is showing a steady drop in revenue collections over the years. Users can make financial transactions using the platform through credit cards, debit cards, PayPal and some other payment methods. When users make such payments to platform developers, Facebook receives a marginal cut of the payment amount. Other fees include posts promoted by users, to reach more people and revenue from Facebook Gifts. The other fees are considered immaterial by Facebook. Going forward, the revenue from Payments and other fees are expected to go further down in 2017, when compared to 2016.

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The operating income for the fourth quarter of 2016 was $4.6 billion (roughly Rs 30,983 crore), which was a margin of 52 percent. The tax rate for the quarter was at 21 percent. Facebook adopted a new accounting standard this year, ASU 2016-9. Total expenses for the quarter was $4.2 billion (roughly Rs 28,283 crore), which is a 29 percent increase over the previous quarter. Overall, the operating margins have been increasing over the years. Facebook made a lot of hires in the last quarter of 2016. There were 17,000 employees at the end of the year, which is a 34 percent increase over the previous year, and a 31 percent increase over the previous quarter.

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Over the course of 2016, Facebook generated $11.6 billion (roughly Rs 78,097 crore) in free cash flow, and ended the year with $29.4 billion (roughly Rs 1,97,892 crore) in cash and investments. Quarterly capital investment increased by a whopping 83 percent compared to the same quarter in the previous year, and the annual capital investment saw an increase of 78 percent. Facebook significantly increased the amount of money it is putting in to grow its business over the course of 2016. Facebook has indicated that it will continue to invest heavily in 2017 as well.

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Monthly active users have been going up steadily. Growth in monthly active users has plateaued in Europe, US and Canada. This means that Facebook has reached saturation levels in these markets, with little room for growth. However, Facebook saw steady increase in the number of monthly active users in the Asia-Pacific region and the rest of the world. Facebook has not released information of users based on other demographic cohorts such as age or gender. However, David Wehner, CFO of Facebook said that, "We remain a great place for advertisers to reach millennials and Instagram is obviously another great place to reach Millennials. We continue to build our products to serve a wide variety of audiences including Millennials well."

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Mobile-only monthly active users have been steadily increasing over the course of the years. The fourth quarter in 2016 saw a 10 percent increase in mobile only monthly active users over the previous quarter and a 39 percent increase over the previous year. The numbers show a steady 10 percent increase in mobile only users every quarter. The growth in mobile only users shows that Facebook is on the right track with its aggressive mobile strategy. Going forward, Facebook plans to increase the advertising revenue from Messenger and Instagram. WhatsApp is safe, for now. Most of the growth of Facebook has been driven by Mobile.

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Almost 1.15 billion users were logging on to Facebook on an average day in December. That is up 212 million, or 23 percent over the previous year. Instagram touched 400 million daily active users. Instagram Stories, a feature cannibalised from Snapchat hit 150 million daily active users within five months of the launch of the feature.

An analyst asked Facebook the difference in approach between Instagram and Facebook. Instagram is going to get a video push with partners, along with a revenue sharing agreement. Zuckerberg said that Instagram was a visuals only platform, whereas Facebook was a mix of all kinds of content. Also, Facebook is based on a one on one friendship model, whereas Instagram has a followers approach. These are two different ways people make connections.

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This is the last report that will have monthly active users separately from mobile and mobile-only monthly and daily active users. This is because mobile only active users are most of the active users, and it is making increasingly less sense to keep the two separate. WhatsApp has 1.2 billion monthly active users, and Instagram has 600 million monthly active users. 50 million people around the world use Internet.org. Free basics is available in 40 countries around the world, and zero rated schemes are among the cheapest and most popular ways to get access to the internet. India has banned zero rated schemes, and Facebook has shut down Free Basics in India.

A motorist rides past a billboard displaying Facebook's Free Basics initiative in Mumbai, India Image: Reuters

A motorist rides past a billboard displaying Facebook's Free Basics initiative in Mumbai, India Image: Reuters

Going forward, Facebook continues to expect growth driven by advertising revenue. Facebook plans to invest in research and development, content, sales and marketing in the short and long term future. There will be an increase in hiring and the growth rate for 2017 is expected to be more than the 34 percent that was seen in 2016. There will be increased spending in data centers and office premises to support the growth of the company.


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