I last wrote about FB more than 5 years ago. At that time information was relatively sketchy but it seemed to have historic net income of around $0.3 billion but was suffering quite serious technical glitches. A few months later I made some comments about Zuckerberg’s fairly ruthless approach to using tech to get revenue.
History repeats itself. For years Bill Gates was written up by the press as a techie bringing us wondrous technical things. Few could hope to understand what went on under the hood, but all could marvel at the benefits it brought. It turned out that as a geek he was beta+, probably worse at coding than I am (and my interest in coding is extremely part-time), whereas he was the son of a tough east-side New York lawyer, and far from second-rate at being tough in business.
I want to try to avoid apoplexy, so now is not the time to rehearse his many misdeeds, but let us wonder instead at Mark Zuckerberg. Also presented as a geek. Yet his geekery seems to be mainly devoted to such misdeeds as pretending our privacy is well-protected on his site, whilst ensuring the opposite.
It took me a while to grasp the magnitude of the MZ achievement. The 1Q16 figures show a billion DAU (daily active users), of whom 90% are mobile DAUs. I take that to mean that they are receiving push notifications on their mobiles. That does not mean, of course that they take a blind bit of notice of them. I get them on my iPhone6+ but rarely look at them, whereas recently I have been a DAU on my desktop (unusual – normally I glance at FB about 6x a year).
MAU (monthly active users) are just over 1.5 billion. The split North America : Europe : Asia/Pacific : Rest of World is 14 : 20 : 24 : 32 (expressed as % summing to 100%). But the revenue per user is $2740, $1307, $862, $473. Advertising revenue is 97% of total revenue. Quite what the rest is I am unclear.
But there is much to ponder there. It is unsurprising that a US user is worth nearly 6x a RoW user, but more surprising that they are worth more than 2x a European user. Then the amount per user is stunning. A single DAU (if that is what they are) in the US pulls in over $10k a year for FB.
I find it really hard to believe that those amounts are worth paying for the advertisers. This looks to me like MLM costs without MLM benefits. MLM = multi-level marketing. That is the system of one-on-one selling with downlines so that the supplier pays out about 75% of revenues in sales costs to the army of MLMers. In the UK we tend to sneer at MLM as (fraudulent) “pyramid selling”. Of course, it does attract fraudsters. But it is also a legitimate, and powerful, sales technique. At its best it can mobilise a large army of one-on-one sales reps in a remarkably short space of time to promote a new product. But with selling costs of 75% that only works for certain types of product/service.
The intensive day-time TV selling channels, which are typically used for new consumer gadgets, demand about 50% of revenues. Normal businesses expect to shell out far smaller proportions of gross revenues in selling costs.
I must get hold of some standard analyst materials. I simply don’t understand the FB numbers. Oh, GAAP earnings per share was 52c for 1Q16. So taking the earnings as $2, with a share price of $117 that is a multiple of nearly 60x. Sky-high. But then if he could pull up those European and Asia/Pacific per user numbers to something approaching the North America number there would be oodles of growth. But conversely, plenty of scope for plunging numbers if EU regulators got tougher and advertisers woke up to the fact that they were overpaying by a factor many.