Cloud Computing

Facebook Q2 Earnings: Buckle Up — Turbulence Ahead - Google Q2 2018 Earnings: Firing on All Cylinders

Facebook Q2 Earnings: Buckle Up — Turbulence Ahead

By now you have undoubtedly read countless articles talking about Facebook’s recent quarter and broadly proclaiming the end is near for the social media giant. This post will focus on what is salient to the brands and retailers that leverage Facebook’s platform and try to avoid the hyperbole associated with much of what surrounds Facebook (good or bad).

To that end, here are some facts: Facebook reported quarterly revenue growth of 42% but spooked the investment community with commentary on upcoming deceleration of growth targets that were much faster than expected by many watchers.

Highlights from the quarter:

Total revenue increased 42% from Q2 2017 (38% on a constant currency basis) to $13.2 billion.
Mobile advertising revenue grew at 50% and accounted for 91% of total ad revenue in Q2.
Net income increased 31% to $5.1 billion.
Capital expenditures for the quarter more than doubled to $3.5 billion.
Employees now number more than 30,000, which is an increase of 47%.
Average price per ad increased 17% and ad impressions increased 21%.
Monthly active users were 2.2 billion, up 11% from a year ago with the growth coming largely from Asia-Pacific (the U.S. and Canada, along with Europe, were essentially flat).
Facebook also reported a new metric never used before: 2.5 billion people use at least one Facebook app each month (Facebook, Instagram, WhatsApp, Messenger).
The results generally indicated the continuing strength and engagement of the platform by users and advertisers despite all the various controversies. The questioning came in around the guidance in which Facebook indicated revenue growth would decelerate to potentially as low as the mid 20s exiting 2018 and that investments in platform security would be very significant.

One area of strength highlighted on the call was Instagram, which has now surpassed 1 billion users. Instagram thus far seems relatively immune to much of the controversy around data sharing, fake news and the like, and it continues to be an attractive choice for advertisers. Although Facebook doesn’t break out impressions by product, we would guess that a significant amount of Facebook’s 21% growth in ad impressions is coming from Instagram. Facebook made a point of calling out the effectiveness of Instagram Stories as an ad format for retailers to engage with potential customers.

While Facebook makes investments in security to shore up the long term viability of its platform, we continue to recommend that brands and retailers leverage its current capabilities as part of their advertising strategy. After all, there are only so many places you can reach an audience of this size.

Google Q2 2018 Earnings: Firing on All Cylinders

Google’s parent company Alphabet released its Q2 results this week with continued strong growth of revenues. Overall revenues increased 26% versus last year (23% on a constant currency basis), which maintained Q1’s growth rate. The company is fresh off its Google Marketing Live event in early July (more on that below), and in the words of CFO Ruth Porat, Google’s advertising business continues to be “firing on all cylinders as we put the power of machine learning into marketers’ hands.”

All in all, Google saw continued steady growth, which is all the more impressive when you consider the size of Google’s business.

Some of the highlights from the quarter include:

Revenue increased 26% for the quarter (23% on a constant currency basis) and was $32.7 billion.
Net income was impacted significantly by the recent fines imposed by the European Commission related to Android (we won’t cover those here). From an advertiser perspective, a better measure of Google’s profitability is Free Cash Flow, which was $4.2 billion, down just slightly from Q1 ($4.3 billion).
Paid clicks increased 58% on Google properties.
Average cost per click (CPC) was down 22%.
Other revenues were up 37%, which includes Cloud, Play and hardware (Home, Pixel, etc.)
We attended Google Marketing Live in San Jose earlier this month, so we were able to hear the latest on how Google is thinking about the future of advertising and retail.

The overall theme put forth in the keynote address by Google’s Senior VP for Ads Sridhar Ramaswamy was how Google is focused on “advertising that works for everyone.” To achieve this, Ramaswamy believes that advertising should be valuable, offer transparency and be trustworthy. This philosophy extends across all elements of the platform — from Search to YouTube and everything in between.

Google announced a few key innovations at the event, most of which continue on the theme of Artificial Intelligence and Machine Learning being a force for creating better advertising. One example we are already leveraging for our advertisers is Responsive Search Ads. These text ads are powered by machine learning and are able to test numerous variations of ad creative to find the one that works best.

Additionally, features like Smart Campaigns and Smart Shopping Campaigns were positioned as a way for small businesses to more easily participate in Shopping Campaigns.

Finally, as we mentioned last quarter, the new Shopping Actions program is another key part of Google’s strategy for marketing in what it calls “the age of assistance.” Throughout Q2, we saw more ads for Google Express show up in search results, and the growing momentum of Shopping Actions is a trend we’ll be watching closely over the next few months.

With the crucial holiday season approaching, we would definitely recommend any advertisers and sellers jump on this program now, so you’ll be ready for the busy season ahead and not left wondering where your usual search traffic has gone.