For Facebook Inc. (NASDAQ:FB) f8 was another confirmation of a core thesis Barclays has for consumer internet, namely that the largest ecosystems in the East and West are extending their lead vs everyone else. The amount of resources that Facebook, Google and Amazon are throwing at solving key technologies is staggering, evidenced by all the innovation on display during the developer conference season. While this year’s f8 was a tad light on metrics and hard disclosures, the Facebook family of apps continues to ramp both overall users and engagement, and that’s the most important part of the bull case.
Given that nearly all the revenue at Facebook (and IG) today comes from the core newsfeed, the overall take-away was that engagement is still increasing and monetization tools are improving. There is a clear increase in emphasis towards video content in the feed across all genres, and new formats like live and stories.
The only thing the firm continues to scratch its head on a bit was that Facebook's entire push towards AR and the camera as the starting point for future self-expression seems to pull users away from the primary business model today (ie – the newsfeed as the starting point), potentially a strategy tax. The firm’s conversations on the floor suggest that there is a lot of research going on around how users are engaging with the new camera in each Facebook mega-app and that the approach will be slow and methodical.
Chris Cox stated that video is likely to represent 75% of overall internet traffic in five years, and user demand for video is steering Facebook’s products aggressively in this direction. Distribution advantage remains massive compared to everyone else (aside from Youtube), and over 40% of video consumption stems from sharing, a huge competitive advantage. Facebook covers every end of the spectrum from UGC to Premium and across many formats. Monetization models seem to be in place for premium video clips (ad break, etc). The dedicated video tab and connected TV app were highlighted.
Facebook didn’t really announce any additional big video partnership deals at f8 (like the recent MLB/MLS/etc agreement) but pointed to lots of experimentation going on from video content creators.
The firm continues to see two scenarios forming for Facebook Video: Users continue to frequent their newsfeed and spend incremental time watching video in the new dedicated tab (and eventually the dedicated app), or the newsfeed is the destination for users consuming video in the future.
Facebook's AR strategy is the right one – rather than try and build all the innovation themselves (ala SNAP), the company is building a platform and empowering developers to create new experiences using the tools. This open approach, whereby Facebook provides the distribution and developers create new products, tends to work better and faster than a closed approach.
The AR Studio is still in closed beta, and not ready, despite looking amazing. Google (Project Tango) and Apple are building similar functionality into their OS’s, which offer a comparable level of distribution to developers.
The most important metric for Messenger is the 1.2B global users and the comment that messages sent per user (i.e. – engagement) is “increasing rapidly”. The direction the company is going with M and smart suggestions seems like a smart move (similar to Google Assistant), but it’s too early to really know how much traction it may ultimately get. Smart replies for businesses seems like a home run for basic FAQs and automating user to business communication.
The firm remains skeptical that bots, extensions or QR codes are going to be huge wins for Messenger. It thought it’d see more emphasis on sponsored “masks/effects” (analogous to Snap’s sponsored lenses/filters) which seems like a no brainer with large revenue potential and very native to the user behavior on Messenger, but maybe Facebook is saving that catalyst for when they need it (next year?).
Instagram and WhatsApp had a smaller presence at f8, consistent with prior years and understandably so given their limited footprint with the developer community today. VR seems to be advancing at a rapid pace inside Oculus, but the firm continues to believe that Rift’s price and limited “killer apps” are holding back adoption. Mobile VR has made huge strides in the past 12 months and is likely the mass market.