Video Takes Centre Stage as Facebook Delivers Huge Growth

Facebook released its Q3 earnings report yesterday, revealing a year-on-year revenue growth of 47 percent to $10.3 billion and profits of $4.7 billion, with ad revenue growing 49 percent year-on-year to $10.1 billion. On last night’s earnings call, Facebook CEO and founder Mark Zuckerberg was quick to try to allay concerns about the Russian ad-buying scandal, but still it was Facebook’s video ambitions that dominated much of the conversation as the social giant continues to go from strength to strength.

Zuckerberg used the earnings call to outline his vision for video on Facebook, saying that he wants to focus on building communities and conversations around video content. “We’ve found that communities formed around video like TV shows or sports create a greater sense of belonging than many other kinds of communities” he said. “We’ve found that live videos generate ten times the number of interactions and comments as other videos.”

However, Zuckerberg was reluctant — or perhaps unable — to provide specifics about what this community based video will look like, and many questions around the future of Facebook’s Watch tab remain unanswered. The executives on the call also avoided giving direct answers to questions on how much of next year’s huge forecast expenditure will be spent on video, and question on upcoming mobile rights for NFL was straight out ignored (possibly forgotten) by Zuckerberg.

There were some clues to the future of the Watch tab, though. Zuckerberg reaffirmed Facebook’s plan to continue investing heavily in content for Watch, stating that he wants to invest just as much in the community features built around video as the video content itself. He said that Facebook is ‘agnostic’ around whether it licenses original content or directly produces it itself. But perhaps most interestingly he emphasised that in the long run, he believes the majority of content on the Watch tab will be uploaded by users and businesses who will receive a share of ad-revenue, a model which sounds more similar to YouTube than Netflix or Amazon Prime. That’s not to say that Facebook has ruled out investing in big budget shows though; when one analyst pointed to Apple’s recently commissioning a reboot of a Spielberg TV series and questioned whether Spielberg would be happy to work for ad revenue share, Zuckerberg agreed that not all content will be supported by ad-models alone.

Regardless of how Watch is going to evolve, at this point it’s clearly a huge part of Facebook’s growth strategy, even if there are no real metrics to demonstrate success so far. Asked about the profitability of video content, CFO David Wehner simply said that there will be a “different margin structure” for these ads, and later said it was too early to give any data on uptake for the Watch tab.

Aside from changes to content, Facebook continues to add new video ad products, with COO Sheryl Sandberg detailing some of the developments from Q3. Advertisers can now run ads solely on ad breaks, whereas previously in-video ads also had to run in newsfeeds. On Instagram, new tools have been introduced to give advertisers more flexibility in reach and format of their ads, and on Facebook a new template has been released for collection ads.

Changes to Facebook’s ad policies in light of the Russia revelations featured heavily in the call too. Zuckerberg labelled tightening of security as his number one priority, saying the Facebook is investing so much in security that the spending will “significantly impact profitability going forward”.

Indeed, if the analysts are to be believed, Facebook’s expenditure forecasts for 2018 are expected to rise significantly due to investments in security, video, AI and VR. Brian Wieser, Senior Analyst at Pivotal Research, wrote that he believes the current rates of growth being enjoyed by Facebook and Alphabet are ultimately unsustainable and that he expects their growth rates to converge with the rest of the advertising market. “In our view, overall expenditures in the advertising industry will not rise simply because Facebook (or other media owners) can create innovative and efficient ad products. Consequently, we think ongoing revenue deceleration is inevitable and expect our current +28% growth rate for 2018 to fall towards ‘teens levels in following years.”

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