Facebook earnings reading: China is one of the largest advertising markets
Facebook on Wednesday reported its third-quarter 2015 results. Facebook reported third-quarter revenue of $4.501 billion, up 41 percent from $3.203 billion a year earlier, and net profit of $896 million, up 11 percent from $806 million a year earlier.
After the earnings report, Facebook CEO Mark Zuckerberg, Chief Operating Officer Sheryl Sandberg and Chief Financial Officer Dave Wehner participated in a subsequent conference call with analysts to read the earnings highlights and answer analyst questions.
Here are the main elements of the analyst's question-and-answer session:
UBS Analyst: With regard to virtual reality (VR) and Oculus, how far do you think the entertainment and content ecosystem in virtual reality will develop in 2016 and beyond? What role will Facebook play in the development of virtual reality?
Second, with Instagram, how do you balance adding ad volume and ensuring a user experience as your advertising business grows?
Zuckerberg: With regard to virtual reality (VR) and Oculus, the first thing I want to emphasize is that the development of such a platform takes a long time, and we have said many times that we believe that virtual reality and augmented reality (AR) may be the next generation of computing platforms, but comparing it to previous computing platforms, such as mobile phones and computers, I remember the first smartphone in 2003, the first year BlackBerry and Palm developed smartphones, They sold maybe 100,000 phones.
So I think to anticipate the development trajectory of virtual reality and augmented reality platform, I think the history of the development of smartphones can be referenced.
In terms of content, we believe that the most obvious market for virtual reality and augmented reality is gaming, and now 200 million to 250 million people in the world have an Xbox or PlayStation or other console gaming device, and I think this group of people are the first people interested in virtual reality and augmented reality, the first development may be virtual reality.
Some may be single-player games, do not need to network, do not need a lot of people to play together, that is, do not need this market has a large user base before the development.
After the game, I think the bigger market is video and other immersive experience services, where people can make virtual reality content like the social content they're now showing on Facebook, whether it's professional or amateur content, long video or short video, and we've seen some of the content and experiments, but unless there are more than a million devices already on the market, it's hard for the industry to grow and it's hard to attract big investments in 2016.
Sandberg: Together, Facebook and Instagram have two of the most important mobile platforms on the market, and Instagram, which launched creative ads last quarter, is visually impacting, attracting a lot of user interaction, plus Facebook's back-office technology and advertiser base.
Now that we have ads for Instagram that have launched advertiser self-service services, that have been launched for all countries that already offer Facebook advertising services, and creative ads specifically for Instagram, we can do more business with Facebook's precision system and contribute data to increase the accuracy of our original system.
In terms of ad volume, we have a lot of experience in launching stream-based ads, and we monitor ad volume very carefully and will continue to monitor it carefully.
Goldman Sachs Analyst: When it came to Instagram ads, I wanted to know what advertisers think, would they talk about Instagram as a separate, incremental ad channel for Facebook?
Second, can you tell me about how you have changed your content strategy over time? In particular, what do you think about video content in the long run?
Sandberg: As for Instagram, what we're seeing in the short term is that some of the Instagram ads are incremental for Facebook, and part of it isn't. Some advertisers prefer Instagram, opting to add a portion of their advertising budget specifically to Instagram, and some are shifting their original allocation to Facebook to Instagram.
For us, in the medium to long term, we believe that Facebook and Instagram are not competitive relationships, we are competing with other forms of media advertising, and the result of this competition is that advertisers will seek the highest return on investment and the highest level of attention, which is beneficial for both Facebook and Instagram.
So we give advertisers enough time to experience and research The Effectiveness of Instagram ads and compare them to Facebook ads. I think now if you look at the metrics, especially the amount of time consumers spend on which media they spend now, we have an advantage over any advertising platform in the market.
Zuckerberg: With regard to the long-term strategy of content, I think we should start with short forms of content, which may be social content or paid short videos, but if you look at video alone, the largest portion of the video that users are watching on Facebook right now is viewed through streams of information, and they find something interesting that may not be what they're looking for.
This kind of user behavior is unique on the Internet today, before users found that content is not in this form. Once the user discovers the content, they may watch it directly, or they may collect it and watch it later.
But videos in this stream of information don't usually be a TV show or more than an hour, so what we're seeing is TV shows like "The Jimmy Fallon Show" that cut the content into small clips, three minutes, five minutes, or seven minutes, and put it on social networking sites for people to click and watch, because it's a short format for people to watch directly in the stream.
I think in the future we may develop more different forms of content and develop different products to adapt to this trend. The current market for short video streams on social media is very large, and some of the things we're exploring are far from what we want.
So I think the key question is not how we're going to guide users to long videos in the short term, but how these traditional content producers are going to edit their content to better suit the huge social media user base on the Internet.
J.P. Morgan analyst: Mark, you recently went to China and India, and I'd like to know what you think about Internet.org trends and Facebook's potential in China.
Also, could you tell me what you expect from your company's capital expenditures for 2016, especially for Oculus?
Zuckerberg: Let me start with India and China, which are two very different markets, India is a unique country with a population of 1.25 billion people, and more than 1 billion of them are not yet online, so India will be the country that will benefit the most from the development of Internet connectivity.
We've seen research and reports from a lot of third-party agencies, and if you connect India to the country, it's going to have a huge impact on the local community, both socially and economically.
All the people we know now are online, and we'll see entertainment and basic communication tools on the Internet, but if you can't get to a good school, then connecting to the Internet will mean quality education and information resources, or if you don't have access to good hospitals and doctors, then the Internet may be your only source of information to understand and prevent some diseases, and the Internet is the best tool and resource for raising children, finding jobs, and so on.
The research we've seen shows that for every 10 people given the opportunity to connect to the Internet, one person can get out of the poverty line and create a job opportunity. So that's our goal, and it's a priority for the Indian government, and we're going to do everything we can to help the local government achieve that, and we're very happy to support that.
We're proud that more than a million people in India already have access to the Internet through Internet.org, and obviously this is an early stage of development, and we're only working with one local operator, and there's a lot of room for expansion, which is a great opportunity for India's next decade.
For China, the situation is more complicated, and it's clear that we can't set the company's vision to connect the world and give up the world's largest country. So, in the long run, this is a problem that we need to find a way to solve.
At the moment, I want to make it clear that a lot of people think that Facebook is not in China at all, which is not right, our consumer service is not active there, but China is already one of our largest advertising markets, because there are a lot of big Chinese companies selling to consumers outside china, they use Facebook as one of the main marketing tools, so we are doing our best to assist these companies.
Weiner: We can't give much information about our 2016 expectations until the fourth quarter conference call. But we will continue to invest in the company's short-, medium- and long-term projects: in the short term, we focus on growing communities and executing existing business strategies, and in the medium term, we're focusing on next-generation services, Instagram, Messenger and WhatApp, and in the long term we're investing in areas like artificial intelligence, virtual reality, and Internet.org.
Specifically, Oculus, we are very optimistic about the long-term prospects of virtual reality technology, and we are very much looking forward to the Rift consumer device that Oculus will launch next year. But Mark just said that virtual reality is still in the early stages of development interpretation, can not expect large shipments.
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