Here’s Why Facebook’s Profits Dropped 20 Percent in Q1
Facebook’s big spending on future projects outpaced its revenue for the first quarter, despite gains in mobile use and user engagement. In its Q1 earnings announcement Wednesday, the company reported a 20 percent decline in profit.
Total costs and expenditures increased 83 percent compared to the previous year, while revenue only grew 46 percent. Many of the expenses are in research and development spending, which more than doubled to over $1 billion.
Facebook has acquired numerous apps and even bought the virtual reality gaming startup Oculus VR last year for $2 billion.
Still, according to the social media giant’s announcement, Facebook has more than 1.4 billion active users each month and 936 million users daily.
It emphasized the 1.2 billion people who use Facebook mobile, up 240 million from last year, and the over 1 billion mobile searches every day.
Mobile is now 73 percent of total ad revenue. During Wednesday’s investor conference call, COO Sheryl Sandberg said that the company now has more than 2 million active advertisers.
Sandberg mentioned several examples of video being an attractive medium to advertisers.
“In the election, you saw Hillary Clinton announce her candidacy very recently, obviously. And that video got 2.7 million views,” said Sandberg, “Ted Cruz and others have done the same and they’ve gotten large numbers of video views.”
CEO Mark Zuckerberg mentioned that upcoming will be spherical videos, 360-degree videos that give an immersive experience. The videos will appear in the News Feed, on the main page of Facebook when a user logs in.
Spherical videos are also compatible with the virtual reality headset Oculus Rift, from the gaming company that Facebook purchased. Users can watch the videos with the headsets on to get a sense of being in a virtual reality.
But large shipments of the headsets won’t be arriving this year, said CFO Dave Wehner, as the technology is still in the early stages of development. Those anticipating the headsets may have to wait until next year.
Another area that Facebook is spending big on is the many apps it has acquired.
“Facebook has evolved from a single blue app on your phone into a family of apps,” said Zuckerberg. “Over time, we expect people to share richer content with an increasing frequency, so we want to continue developing new and better tools to facilitate this expression.”
Zuckerberg emphasized that apps like WhatsApp, Instagram, and others were exploding in popularity. Those apps have not yet translated into profit for Facebook.
Facebook is also involved in many projects with expected long-term payoff.
The company has made efforts to provide Internet to nine developing countries including India, Colombia, Guatemala, the Philippines, and Ghana. Through Internet.org, over 7 million have gained an Internet connection, according to Zuckerberg.
Zuckerberg also hinted at the next generation of Internet services to be announced in the coming months, as Facebook explores search, artificial intelligence, and Oculus.