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30 July 2021

Facebook Revenues See Sharp Increase

Facebook’s second-quarter earnings exceeded expectations after they were revealed on Wednesday, with revenues an impressive 56% higher than a year earlier, while net income nearly doubled in the same period. This revenue spike was higher than expected given the impact of COVID-19 on 2020’s second-quarter revenues. It was also fuelled by a recovery in Europe and in South America, Africa, the Middle East. Rising interest in advertising space from e-commerce and recovering industries such as travel and leisure drove average advert prices up 47%.

While the quarter saw Facebook remaining in line with expenditure and investment targets, doubts still linger over the company’s ability to grow its advertising revenue, which depends on increasing penetration in already-saturated markets or using data insights to better target adverts. As regulators look to build walls around personal data, and rivals Apple put a leash on data collection in their latest iOS 14 update, management expects revenue growth to decelerate through the year. Noticeably light on details, executives promised investment in new methods of data collection that minimise personal data exposure but maximise targeted adverts, citing Facebook shops as a possible method of increasing advert relevance.

Although most see the advertising business running out of room to grow, the company isn’t standing still. Strong cash generating abilities, with free cash flow doubling since last year, are enabling hefty investment in new business areas. Facebook is pouring billions into research and development to fulfil Mark Zuckerberg’s lofty vision that the company will not be seen as a social media company, but as a “metaverse company”, referring to a virtual internet you go in rather than on. This would make use of its advancements in virtual reality and augmented reality with its new virtual world, Facebook Horizons, being a notable step in this direction.Technophiles may squeal at the prospect of smart Ray-Ban glasses releasing this year, but the gradual rollout of new products seems to be a testing ground for fulfilling this final goal. Meanwhile, Facebook is in the process of turning WhatsApp into an integrated payments, commerce, and business messaging platform reminiscent of Alipay.

Exciting as they are, it has been warned that these investments may have a material impact on margins for years to come before they bear fruit. The sheer scale of the advertising business means that any new products will take years of consolidation before beginning to contribute to headline growth. With billions of dollars in cash, no debt, and a powerful network at its disposal, investors just might be willing to wait.

Please note that investments and income arising from them can fall as well as rise in value. This communication is for information only and does not constitute a recommendation to buy or sell the shares of the investments mentioned.
Facebook Revenues See Sharp Increase
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