Tuesday, 17 September 2013

Facebook: Building Knowledge Economy & Thoughts about Second Half of 2013

Building the Knowledge Economy:

Let’s talk about building the knowledge economy and what that means for Facebook’s core business. A lot of new businesses have signed up to advertise with Facebook, so they now have more than a million active advertisers. Their newsfeed ads products are working well for advertisers. One of the things, Facebook likes to watch most closely is the quality of their ads and people sentiment around them.

Right now, ads on average make up about 5% or 120 stories in newsfeed, they haven't measured a meaningful drop in satisfaction when they ask people about their experience with Facebook. Mark says, ‘We are comparing that to the result we get when asked the same question to people using a version of Facebook with no feed ads at all’.

Now that said in recent studies people have been telling that they notice ads more, so Facebook is going to invest more in improving the quality. Their top priority is to expand the number of marketers and overall demand in their system rather than just increasing the number of ads that they show.

Thoughts about the Second Half of 2013:

Facebook expects newsfeed ads to remain the main driver of revenue growth in the second half of the year and believes to have a great opportunity to continue to drive long-term growth by improving the quality and relevance of ads. However, remember that newsfeed ads really began to contribute to Facebook’s revenue in the third and fourth quarters last year which will make more difficult year-over-year comparisons in Q3 and Q4 relative to Q2.

Looking at expenses, consistent with what was said previously, Facebook plans to invest in their business and continue to expect that total non-GAAP expenses including cost of revenue but excluding stock comp will likely grow in the neighborhood of 50% for the full year 2013 compared to 2012. And they also continue to expect that this full year-over-full year expense growth rate will be faster than their year-over-year revenue growth rate for the full year 2013 compared to 2012.

In terms of Facebook’s tax rate, they expect that Q3 and full year non-GAAP tax rate will be a few percentage points higher than their Q2 rate. And finally, they expect 2013 CapEx to be in the neighborhood of $1.6 billion. This is down from Facebook’s prior estimate of $1.8 billion due to a combination of the efficiency gains and changes in timing of purchases.

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