“I am dead serious about this,” Mark Zuckerberg CEO of Facebook told analysts in his opening comments on increasing security measures on the social network. “I’m talking about this on our earnings call is that I’ve directed our teams to invest so much in security on top of the other investments we’re making that it will significantly impact our profitability going forward, and I wanted our investors to hear that directly from me,” he added.
Facebook reported a 47% year-on-year (YoY) increase in total revenue to more than $10 billion in the quarter. “But none of that matters if our services are used in a way that doesn’t bring people closer together, or if the foundation of our society is undermined by foreign interference,” Zuckerberg said.
In the backdrop of Facebook being used to manipulate US elections in November 2016 by Russian actors, he added that the company would not stand for how their tools were used to sow discord. “We built these tools to help people connect and to bring us closer together, and they used them to try to undermine our values. What they did is wrong, and we are not going to stand for it,” he stated.
The earnings call was dominated on measures Facebook will be taking for increasing security. Here are some of the highlights from the call:
Increase in headcount
Facebook will be increasing its headcount from 10,000 to 20,000 to enforce community standards and review ads. He added that it will be investing in technology to find “bad actors and bad behavior”. The technology and the increased headcount will be used for removing false news, hate speech, bullying, and other problematic content.
Chief financial officer David Wehner said that the current 10,000 employees deployed to police fake news, hate speech and bullying are not only from Facebook but from other partners as well.
New AI for security
Facebook is now building a new artificial intelligence (AI) for taking down “bad content and bad actors”. Zuckerberg added that it will be focussed fake accounts. Wehner had some additional information of accounts being removed and said that they are using a new methodology to identify duplicate accounts. The company has increased its estimates for duplicate accounts to approximately 10% of its worldwide monthly active users (MAUs) from 6%. “Duplicate accounts are those that we believe are used by the same person and represent real activity and engagement on Facebook,” he added.
It also increased its estimate on the number of inauthentic accounts to approximately 2-3% of the worldwide MAUs. “Inauthentic accounts are largely those that are used for spam and other policy violating reasons. We continuously monitor and aggressively take down those accounts,” he added.
Zuckerberg added that the new AI tool will enable a system to look at millions of pieces of content to make rough assessments on them and flag them for people. “But ultimately, if you want to get those high-quality judgments today on sensitive content and you want to do it quickly when the stakes are pretty high in terms of taking down content or leaving things up, and we take that extremely seriously, you want people to be looking at that,” he explained.
Zuckerberg gave the example of people committing suicide on live video on the platform and other types of self-harm. “We made an investment in AI tools and in dramatically increasing the staffing of the team that was working on that and brought the amount of time to review those Live videos down through a combination of those things to – I think it’s under 10 minutes now. That might still be a conservative estimate, and we’re continuing to work on that,” he said.
Disclosures on political ads
Facebook is also rolling out a tool where users can see all of the ads a page is running and also an archive of ads political advisers have run in the past. In the United States, it is working with the Congress to make advertising more transparent and introduce legislation for the same. The tool will be rolled out in Canada and the US first. Facebook will also require more documentation from advertisers now and have to label their ads so it’s clear who paid for them.
On ads related to the US elections, Zuckerberg said that the company will be sharing more information which will include an archive of past ads, the total amount spent, and demographics about the people the ad reached.
Note that for India, these disclosures will be particularly important in the upcoming general and state elections in India in 2019. The main opposition party in India, the Indian National Congress is reportedly in talks with Cambridge Analytica, the data analytics firm US President Donald Trump used for targeted ads on Facebook.
However, chief operating officer Sheryl Sandberg said that “ads are important to free expression and we will continue to accept ads on issues, but we will also do our part to elevate the quality of that discourse.”
Sandberg also said that the company is increasing transparency on organic content from pages and said that they were going to provide more information on who is behind a political or issue-based page. “We believe this will make it harder for deceptive pages to gain large followings and make it easier for us to identify malicious activity,” she said.
Number of advertisers on Facebook
Sandberg also gave some statistics on the number of advertisers on the company. “Today, we’re announcing that Facebook has over 6 million active advertisers, and we recently announced that Instagram has over 2 million advertisers. The vast majority of these are small and medium-sized businesses, which are a major source of innovation and create more than half of all new jobs globally. These businesses often have small ad budgets, so the ability to reach people more effectively is really valuable to them,” she added.
Ad rates on Facebook
During the quarter, Wehner said that the average price per ad increased 35%. He said that this was partially due to the auction dynamic on Facebook. “As supply growth has slowed, then there’s more competition, and you’re seeing prices increase as demand continues to grow,” he said. Note that Facebook has maxed out how many ads it can squeeze into people’s news feeds, and as a result, are looking monetize their other properties. Expect to pay more for ads on Facebook.
During the quarter, Facebook launched Watch where it surfaces original video series/shows from a wide range of publishers and content creators. Zuckerberg discussed how monetization would work for video now. He explained that users come to the News Feed to see what’s going on with their friends, see what’s happening in the world and the videos are geared towards that. “They’re not coming necessarily to engage in a specific type of video or specific community around video.,” he said.
Watch, he said, is used for enabling discovery. “Now in order to build that up, we think it makes sense to first invest in a bunch of lighthouse content, some that we may produce or some that we may license,” Zuckerberg said. Lighthouse content is a marketing strategy where it will highlight an issue for users and drive engagement.
“Long term, our hope is that the business here will primarily be through revenue shares of videos that normal creators and businesses put into the system rather than ones that we proactively go out and license ourselves,” Zuckerberg said.
Financials and numbers
- Total revenue was $10.3 billion up 47% YoY
- Ad revenue was $10.1 billion, up 49% YoY
- Ad revenue growth was led by Europe and APAC with 56% and 54% growth respectively
- Mobile ad revenue was $8.9 billion, up 57% YoY
- Payments and other fees revenue was $186 million, down 5% YoY
- Total expenses were $5.2 billion, up 34% YoY. “Q3 was our biggest hiring quarter ever. We added over 2,500 people and ended the quarter with over 23,000 employees, up 47% compared to last year,” Wehner said.
- Net profit was $4.7 billion in the quarter
- Daily active users in Q3 reached 1.37 billion, up 16% compared to last year.
- DAUs represented 66% of Facebook’s2.07 billion monthly active users in Q3.
- MAUs were up 284 million YoY or 16%.