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Facebook CEO Mark Zuckerberg outlined a new vision for the company on its quarterly earnings call Monday, announcing a significant $10 billion investment in the “metaverse,” with higher expenses to follow in subsequent years, a change in how the company reports earnings, and most critically a new strategic “North Star”: Serving young adults age 18-29, rather than the older adults that have driven the company’s growth in recent years.
Zuckerberg said the plan to focus on young adults will take years, and will mean that its user growth will be impacted in coming months and years. He also said that the strategic decision was made in part by competition from TikTok, which he called “one of the most effective competitors we have ever faced.”
To that end, Zuckerberg touted Reels as a big part of its push for younger consumers, comparing it to the introduction of the Facebook Newsfeed in significance.
“I think that this is going to be a very meaningful change in how people use a lot of different products across the internet,” he said.
Facebook reported $29.01 billion in advertising revenue in the third quarter, missing Wall Street expectations. Advertising revenue was $28.3 billion, up from a year earlier, but down from the prior quarter. Profits topped $10.4 billion, a record for the company.
In Q2, the company’s ad revenue hit $28.6 billion, comprising the majority of Facebook’s $29 billion in revenue. But with changes to ad targeting, most notably from Apple’s iOS update that allows users to opt out of ad tracking, Facebook has previously cautioned that “increased ad targeting headwinds” would impact revenue in Q3 and Q4. (Snap, reporting its earnings last week, said its earnings fell short of projections because of the iOS privacy changes and supply chain delays.)
Looking ahead, the company released modest guidance for Q4, writing in its shareholder letting that the change was made “in light of continued headwinds from Apple’s iOS 14 changes, and macroeconomic and COVID-related factors.”
COO Sheryl Sandberg explained that the company is dealing with both measurement and targeting issues as it responds to Apple’s change.
“On measurement we think we can address more than half that underreporting by the end of the year,” Sandberg said. “We have to do the work to help clients measure these properly.”
She added that “targeting is a longer-term challenge” that will take multiple years to respond to.
The company also revealed plans to significantly change how it reports earnings going forward. Beginning in Q4, Facebook will report Facebook Reality Labs (FRL) as its own segment, separate from what the company will call “Family of Apps,” including Facebook, Instagram, and WhatsApp. FRL will include all virtual reality and augmented reality hardware, software, and content. The company says its investment in FRL will reduce its 2021 profits by $10 billion, and Zuckerberg added that it plans to increase that spending in future years.
“The reason we have been able to survive for more than 2 decades is because we keep evolving and building,” Zuckerberg said, adding that the “next 1-3 years is putting foundational pieces in place” and that they will not be profitable “anytime in the near future.”
For the social media giant’s user base, Facebook reported 1.9 billion daily active users and 2.9 billion monthly active users last quarter, and essentially the same numbers this quarter.
Monday’s earnings follow the release of thousands of internal documents, known as the Facebook Papers, that detail how Facebook studied the harm caused or exacerbated by its platform and placed user engagement above the safety of users, among multiple other revelations, according to numerous reports from outlets that reviewed the leaked files.
On the earnings call, an emotional Zuckerberg said that “my view on what we are seeing is a coordinated effort to selectively use leaked documents to create a false picture about our company,” and that in his view Facebook “sets the standard for transparency.”
Rather, Zuckerberg added, “these questions are not about our business, but about balancing different social values.”
“I also think that any honest account should say that these issues are not primarily about social media… Polarization was on the rise in the U.S. before I was born,” he added. “The reality is that if social media is not the main driver of these issues, then it probably won’t solve them either.”
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