What’s cooking Facebooking?


“100 million hours of video are watched daily on Facebook. 500 million people use events each month, 123 million events were created in the whole of 2015. That strike rate then seems pretty low? I suppose some events don’t need more than 10 people. Yet what still amazes me is that the core business has only 2.5 million active advertisers.”


To market to market to buy a fat pig. Stocks in Jozi, Jozi yesterday were in catch up mode across the globe, adding over four-fifths of a percent by the close and ending the day near the top end of the days trade. All the major sectors added and weighed in, a bit of a weird scoreboard from a winners and losers perspective however, Glencore up the most, Amplats down the most and everything in-between. Forget all that, stop the clock, Mr. Market today will have priced in a rate hike of some sort. Either 25 or 50 basis points, Joe Consumer is going to have to pull in their belly a little. Michael did send me a picture that suggested that the South African consumer had repaired their personal balance sheet significantly since 2008. Household debt had fallen. Yet the opposite is often conveyed across to us.

Quick leaping across the sea and far away, stocks sank in the second half of the period, mostly as a result of the Fed statement. The highly (every single time, every 45 days) anticipated FOMC statement. As expected, the Fed passed on hiking rates this time, whilst the domestic economy (the US) was strong, the rest of the world, well, not so much. “The Committee is closely monitoring global economic and financial developments and is assessing their implications for the labor market and inflation, and for the balance of risks to the outlook.” The FOMC (Federal Open Market Committee) will continue, like the rest of us, to monitor the labour market and inflation. Yes, thanks for that. And then this one is for all of you to interpret, classic Fed-speak:

“The Committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run. However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data.”

So that means, “let’s watch it”. In the aftermath of the statement, stocks sank, the Dow(n) Jones Industrial average ended 1.38 percent lower, tech stocks were dragged lower by Apple, the nerds of NASDAQ ended down 2.18 percent, whilst the broader market closed down 1.09 percent. Apple (down 6.55 percent) forms part of all of those indices, a major piece of the NASDAQ of course. Sis. It seems that the Fed will continue to be cautious and perhaps investor confidence was rattled a little by the global outlook. I guess being cautious is not the worst thing right now.


Company corner

Facebook (Fays-book). According to the Dictionary of Naryshkine, “to Facebook” is a verb whereby you will completely ignore the people around you in order to post comments or statuses for maximum likes, mostly to people who are “friends”, not necessarily your closest 10 besties. These “interactions” can take place in traffic, either driving or walking (both dangerous), at social gatherings when you are supposed to be talking to physical people, somehow the virtual people always seem more interesting. Weirdly, as online dictionaries point out, the word Facebook is often written with an upper case, yet the trademark name is in lower case, facebook.

Enough of that, let us chat about the company and their Q4 and full year results last evening. The results themselves are available here: Facebook Reports Fourth Quarter and Full Year 2015 Results. Annual revenues nearly clocked 18 billion Dollars for the year 2015, a roughly 44 percent increase in a single year. Somehow I don’t recall anyone still talking about the disastrous Facebook IPO any more. And don’t worry stress balls, the company is monetising mobile just fine.

Net income clocked 3.669 billion Dollars for the year, non-GAAP EPS for the quarter of 79 US cents comfortably trounced expectations. And as we all know, that seemingly is what counts, beating expectations. The same measure for the full year, non-GAAP EPS clocked 2.28 USD. With a share price that is up over 12 percent pre market, the stock is still not cheap by any normal metric. Yet at that pace of growth, the market is certainly affording the company a high multiple. The forward multiple is closer to 33 times earnings.

In terms of users, Facebook (or is it facebook?) clocked over 1 billion daily active users, 934 million mobile active daily users. Monthly active users were 1.59 billion, that is a sizeable number, no matter which way you look at it. There are roughly 7.4 billion people on the planet, which means that only 21 percent of the globe uses Facebook. Of course, many young people are not supposed to have access to the service, there is an age limit, my guess is that it is pretty loose, am I right parents of teenagers, or wrong? The growth rates of users by all metrics are in the high teens or mid twenty percentage growth rates. So yes, Facebook numbers are still growing, and yes, they certainly have their limits, there will be a ceiling. And to think that Facebook only turns 12 next week, astonishing, right? Myspace who?

The Zuck on the conference call: (sign up for free, remember?) Earnings Call Transcript, made some interesting observations about the platforms. 100 million hours of video are watched daily on Facebook. 500 million people use events each month, 123 million events were created in the whole of 2015. That strike rate then seems pretty low? I suppose some events don’t need more than 10 people. Yet what still amazes me is that the core business has only 2.5 million active advertisers. There are 50 million small businesses that use Facebook as a platform, makes sense to use that platform rather than replicate something else.

In terms of their other major platforms, my personal favourite, Instagram, clocked 400 million users back in September. Sheryl Sandberg said on the conference call that 98 out of their top 100 advertisers on Facebook advertised on Instagram too. Facebook’s “Vine”, a looping video app called Boomerang reached number one in the App store in 70 countries after it was launched. Messenger has 800 million users monthly. Did you know that you could simply use the desktop version of Messenger? Really. The company is also testing an artificial intelligence digital assistant for Messenger called M. M for mom or M for Judy Dench? Either way, M deserves respect. You can of course make payments with Messenger, I am not too sure here in South Africa yet?

WhatsApp ended the year with nearly one billion users. WhatsApp is now for free, advertising will come soon no doubt. So I am guessing that Facebook is nearly there in terms of their 1 billion for 3 platforms, by the end of the year WhatsApp crossed that mark, Messenger likely to get there this year and of course the big daddy, Facebook, is there a long time ago. Perhaps Instagram at half a billion by year end. And there is more (wait!), Oculus, the virtual reality hardware starts shipping by the end of March. Pre-orders are open in 20 countries. Tim Cook yesterday said that he thought it was an exciting product, an Apple one to compete at some stage? Zuck ends off on the conference call talking about the addition to his family and continuing to try and leave the world as a better place than inherited. It sounds cheesy, I suspect however that the company could actually do exactly that.

Talking of which, the company continues to grow at breakneck speed, adding 38 percent to their headcount last year, which now numbers 12700 folks. CFO Dave Wehner said on the conference call that the company intends to continue to invest heavily in their existing businesses, across all platforms, capital expenditure levels expected to be between 4 to 4.5 billion Dollars. The pace of growth in their businesses is going to have to keep pace, both the core users and the investors expect this.

The conclusion is simple, if not always cautious. This company continues to grow at a breakneck speed off a bigger and bigger base. User adoption continues unabated, there has to be a ceiling at some stage where users are at a maximum. Equally there may be user fatigue. At the core of us is communication, somehow we are not always good at that. We continue to add to what is turning into a quality business, wonderfully run and most importantly, great experiences that have monetised (and will continue to monetise) all their core platforms. We continue to add Facebook as a core holding to our portfolios.


Linkfest, lap it up

When Elon Musk announced the hyperloop in 2013 it seemed closer to fantasy than reality, things have progressed since then where the hyperloop is now moving into the testing phase – SpaceX Names Hyperloop Track Partner

Going back to the 1800s the average price of oil is $47 a barrel – Actually, oil prices aren’t that extreme if you go all the way back to the 1800s. Having a look at the graph below it is scary to see that oil was above $400 a barrel at some point!

Another stepping stone for the AI industry.Google’s AI just cracked the game that supposedly no computer could beat. Have you noticed how Google search now tries to understand your question and spits the answer out at the top of your search results?


Home again, home again, jiggety-jog. Stocks are mixed to start with, showing a marginal improvement now. Rates announcement will be later this afternoon. As the ex governor Tito Mboweni always used to say, tighten your belts. And then he had that look, the headmaster one.


Sent to you by Sasha and Michael on behalf of team Vestact.

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