Several readers have asked what I’m thinking about Facebook (FB) following their most recent quarterly release — which was, as you’ve probably guessed, for a pretty seasonably quiet quarter. Advertising revenue tends to peak in the holiday season, no surprise there, though Facebook tends to see growth bounce back pretty quickly after it dips sequentially from the fourth quarter into the first each year (and the dip isn’t all that large, usually).
So what’s going on? Well, pretty much exactly what facebook said would be happening this year: They’re spending like mad, and they’re growing their user base.
It remains absurd-sounding that a $200 billion company trades at 40 times current-year earnings, of course (or 76 times trailing earnings, even worse) — but just because it sounds crazy doesn’t mean it’s not reasonable. Facebook, even with the huge spending spree they’re on this year to expand their capacity and their employee base (and their offerings, particularly in messaging), is still growing profits. And unlike many social networks (I’m looking at you, Twitter), users still seem very happy with the service and they’re getting more and more users, who are more and more engaged… and Facebook is becoming almost the default universal mobile operating system, which remains the big story: Facebook had no mobile strategy when they went public three years ago, and now they’re winning the mobile market.
That’s remarkable, and it means they know more about more people, and can serve up more expensive and targeted ads, including video ads that advertisers love, to more people at both the most valuable time and in the most valuable place. Mobile marketing spending is still, I think, just beginning — I publish a website, and I rely partly on advertising, and I have no mobile strategy to speak of, and there are a lot of little guys like me and, shockingly, big publishers who just aren’t getting it right on mobile yet… and if they want to get it right, to get their apps installed and traffic to their mobile site or reach the right customers, they’re increasingly going to have to go through Apple, Google or Facebook to get there — and I’d argue that Facebook, so far, is doing it better than the others. The ecosystems are set, the market dominance has been built (almost overnight), and it is going to be brutally hard for anyone ...