Facing Investors, Facebook Defends Cautious Stance With Newsfeed Ads

Mark Zuckerberg and Sheryl Sandberg are still riding above the fray.

For all the talk about Facebook’s new Wall Street masters, about its inevitable kowtowing to advertisers, about its bummer of an IPO and its withering stock price, the overall impression made by its first earnings call (story) was  of a company largely indifferent to market pressure.

One concern, raised by several analysts, has to do with the rate at which Facebook will introduce sponsored stories to the newsfeed – both in the web and mobile channels. Right now the volume is low. “We can put in good sponsored content without degrading [engagement] metrics,” Zuckerberg said. “We rolled this out conservatively because we want to make sure the quality is very high.”

Facebook’s stock fell in the wake of the earnings report, losing 18% of its value. On the call yesterday, analysts asked in a variety of ways just how long Facebook might require in tapping mobile and the newsfeed.

“At any given time we have a lot of different tests and algorithms,” Zuck replied to one. He said Facebook teams can measure how many people want to share sponsored stories in the newsfeed, how the volume of such placements affects users’ subsequent page views, time-on-site, even sentiment. “We have robust systems built out around this.”

If that’s not clear enough…

Here’s COO Sandberg: “We intend to be continually cautious as we work on user perception.”

And CFO David Ebersman: “We’re not trying to optimize for short term margins.”

And Sandberg again: “We have not rolled out sponsored stories in the news feed across all countries.”

Of course, the earnings call wasn’t only about the newsfeed. In answer to one question about the future of Facebook commerce, Zuckerberg had this to say:

“We’re building our platform and other companies can build on top of that. There will be companies that help transform industries, and we will get some of the value that we’re helping to provide… I don’t have more plans I’m going to share with you today about our product roadmap.”

The tone is reminiscent of a newly public Google, guided by its own compass, but the meaning is different. By the time it went public, Google already had a proven ad format and was highly profitable. Shares of GOOG netted their owners $2.07 in 2004, the year it IPO’d, and more than doubled that return in 2005 (Forbes).

On the contrary, Facebook posted a Q2 GAAP loss of $743 million despite nearly $1.2 billion in quarterly revenue. (On a non-GAAP basis it eked out a small gain.) And it said nothing yesterday to indicate it would dial up monetization in the year’s second half.

As the younger Google did, Facebook does have a roadmap, even if it’s at times opaque to investors. Below are a few excerpts that illuminate it.

On Mobile M&A…

Zuckerberg said, “In mobile, our strategy is to buy companies for talent. We want the type of people… who build out whole companies on their own. Often the best way is to find people who are building companies who might have more leverage if they work for Facebook.”

On the Facebook Exchange…

Sandberg said, FBX is early but our initial testing shows very promising results for advertisers.

On Local…

Sandberg said, “Local is huge. It’s the holy grail of the Internet. This is something in my history working in this industry that I’ve spent a lot of time on. Something like one in 40% of [local businesses] have no web presence at all. Facebook has a huge competitive advantage because those local biz owners are using Facebook as users.”

She continued, “The product we want them to use, Pages, is incredibly similar to their Timeline. We have 7 million small businesses that are using their Pages on a monthly basis. And then hundreds of thousands of those get upsold into becoming advertisers.”

On Sponsored Stories revenue…

Zuckerberg: “Sponsored stories in the newsfeed is $1million per day in revenue,” half of it from mobile.

On Headcount…

Zuckerberg said, “For the forseeable future we’re just going to be way smaller than other companies that address similar size user bases.”


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